fyi
Merrill Report
Price: $16.25
Estimates (Mar) 2000A 2001E 2002E
EPS: $1.76 $1.39 $2.18
P/E: 9.2x 11.7x 7.5x
EPS Change (YoY): -21.0% 56.8%
Q2 EPS (Sep): $0.44 $0.23
Cash Flow/Share: $2.69 $2.36 $3.24
Price/Cash Flow: 6.0x 6.9x 5.0x
Dividend Rate: Nil Nil Nil
Dividend Yield: Nil Nil Nil
Opinion & Financial Data
Investment Opinion: C-2-2-9
Mkt. Value / Shares Outstanding (mn): $4,127.5 / 254
Book Value/Share (Jun-2000): $5.86
Price/Book Ratio: 2.8x
ROE 2001E Average: 18.4%
LT Liability % of Capital: 0.0%
Est. 5 Year EPS Growth: 22.0%
Stock Data
52-Week Range: $86.63-$16.13
Symbol / Exchange: BMCS / OTC
Options: Chicago
Institutional Ownership-Spectrum: 61.4%
Brokers Covering (First Call): 24
ML Industry Weightings & Ratings**
Strategy; Weighting Rel. to Mkt.:
Income: Underweight (07-Mar-1995)
Growth: Overweight (07-Mar-1995)
Income & Growth: Overweight (07-Mar-1995)
Capital Appreciation: Overweight (28-May-1993)
Market Analysis; Technical Rating: Below Average (25-May-2000)
*Intermediate term opinion last changed on 26-Apr-2000.
**The views expressed are those of the macro department and do not
necessarily coincide with those of the Fundamental analyst.
For full investment opinion definitions, see footnotes.
Investment Highlights:
BMCS trading down on news of a significant
2Q FY01 (Sept.) revenue and EPS shortfall.
BMC announced expected revenues for the
September quarter to be in the $320 million to
$330 million range, approximately $60 million
short of our prior $384 million estimate.
Expected EPS in the $0.10 to $0.12 range is
roughly half of our $0.23 estimate.
BMC currently trades at roughly 8x estimated
FY01 earnings. We believe little downside
remains at these levels.
Fundamental Highlights:
BMC pre announced a revenue and EPS
shortfall for the September quarter, its second
in as many quarters.
Reasons for the top line miss center around
BMC’s reliance on the mainframe, and the
lack of MIPS demand ahead of the expected
late calendar Q4 release of IBM’s z900
mainframe (formerly the G7).
The company’s ongoing organizational
transition may be contributing to its near term
execution challenges.
We maintain our intermediate term
Accumulate, long term Accumulate on BMCS.
BMC Software – 4 October 2000
(Continued)
2
History Repeats
Summary
BMC pre announced expected 2Q FY01 (Sept.) EPS
between $0.10 and $0.12 on revenues in the $320 million
to $330 million range. These preliminary results fall short
of Merrill Lynch estimates of EPS of $0.23 on sales of
$384 million. Estimated license sales are expected to be in
the $175 to $182 million range, approximately $55 million
short of the $233 million in our model. This shortfall
comes less than one day after a similar pre announcement
from Computer Associates.
Reasons for the top line miss center around BMC’s
reliance on the mainframe, and the lack of MIPS demand
ahead of the expected late calendar Q4 release of IBM’s
z900 mainframe (formerly the G7). The bulk of the
license shortfall was from North America, where
mainframe sales are down approximately 50% year over
year. International license sales in the quarter are expected
to be flat year over year, potentially indicating the early
stages of a recovery from the organizational issues that
have plagued overseas sales.
As discussed in our August 28 th report, BMC is in the
midst of an organizational transition. Over the past few
quarters the company has undertaken a number of
significant projects revolving around making its sales force
more effective. These changes include:
Moving sales and sales support out into the field
Creating business units focused on targeted markets
including systems management, storage and
scheduling.
Transitioning from its traditional reliance on closing
eight-digit mega deals to a higher volume transaction
business.
Instilling better controls and discipline in the field.
While these transitions may be contributing to BMC’s near
term difficulties, we believe that these changes are
absolutely critical to BMC’s ability to continue to grow in
an increasingly competitive market.
Outlook
The current mainframe environment has been rather
unforgiving as BMC transitions itself to better approach a
changing market. While we believe a resurgence in MIPS
growth in the intermediate term could be a positive for the
stock, we remind investors that the most significant
challenge ahead for BMC revolves around its ability to
address the distributed systems market in order to reduce
its dependence on the mainframe. BMCS currently trades
at roughly 8x FY01 earnings. It would appear that the
ongoing issues facing BMC appear to be priced into the
stock. |
