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TheStreet.com - Silicon Valley
CEO's Bullishness Gives BEA a Tall Order to Fill
biz.yahoo.com
BEA Systems chief Bill Coleman's repeated touting has raised the share price. But can it deliver?
By Joe Bousquin
Senior Writer
So much about a relationship comes down to managing expectations. Right now, BEA Systems (Nasdaq: BEAS - news) is promising Wall Street the moon and it is getting along quite well.
The stock of the application server software firm has rocketed 70% in the last week, as BEA Systems' cocksure chief executive officer, Bill Coleman, has said again and again that things are on track with his business. That's despite the multitude of disasters befalling other software firms right now. At least nine software companies warned last week they won't make financial estimates for the quarter, and BEA Systems remains one of the most richly valued stocks in the sector.
During Tuesday's big rally, BEA Systems shares jumped $6.10, or 21%, to $35.20.
Just last week, Coleman reiterated the company's current financial guidance -- twice. At both a Salomon Smith Barney event and a Morgan Stanley luncheon, Coleman said he was still comfortable with the company's projections from its February conference call. At that time, BEA Systems said it expected an increase in revenue of 46% to 48% for fiscal 2002 to $1.19 billion to $1.21 billion, and earnings per share that was 3 to 4 cents above analysts' (at the time) estimates of 37 cents. BEA's fiscal year ends Jan. 31.
For the April quarter, analysts expect BEA Systems to earn 8 cents per share on revenue of $255 million, according to Multex.com .
Coleman's statements followed confident updates he made on a conference call hosted by brokerage SG Cowen March 30, and bullish comments at a Lehman Brothers software conference in mid-March. All that touting has contributed to the rise of BEA's shares, even as much of the software sector has remained beaten down.
Investors, however, might be wary of the company's claims, especially after getting smacked by Oracle's (Nasdaq: ORCL - news) last-minute miss in March following several weeks of similarly bullish comments from its executives. Then there's the fact that BEA shares trade at nearly 86 times fiscal year 2002 earnings -- not cheap by any measure.
Observers, however, say BEA Systems is different, and they begrudgingly give the company the benefit of the doubt, even as they conceded the company could be setting itself up for a fall.
"It will be interesting to see if Coleman gets to eat his words, because everyone else has been eating theirs," says Joshua Greenbaum, a software consultant at Enterprise Applications Consulting in Daly City, Calif. "But there may be some reasons why this might be a slightly different sector." (His firm hasn't done consulting for BEA Systems.)
BEA executives were not available for comment, a company spokeswoman said.
Greenbaum says the application server software that BEA Systems makes, which connects what a customer sees on a Web site to the database that sits behind it, has seen a big surge in demand over the last year. BEA Systems and IBM (NYSE: IBM - news) are the two primary companies in the market, he says, and once businesses start using the software, they tend to need more and more of it.
For example, Greenbaum says clients that have set up self-serve customer service centers on their Web sites using applications servers soon find out they need much more computing capacity then they anticipated, because usage shoots up.
Moreover, analysts say BEA Systems is different from Oracle, and that it should not serve up the same kind of last-minute miss the database giant did.
"BEA's visibility, relative to Oracle, is better. BEA has a more of a continual process of sales that are closed throughout the quarter" compared to Oracle's last-minute approach, says George Godfrey, an analyst with ING Barings who rates the stock a buy. "I wouldn't say that BEA's quarter is in the bag, but they would certainly want you to believe that they're not sweating it." (His firm hasn't done underwriting for the company.)
Still, even with an absence of damp brows at the company, the prudence of the company's continued touting of its stock is in question. After all, if the economy continues to weaken, BEA will hardly be immune.
"You do have to wonder, what do they have to gain and what do they have to lose by taking that approach. They have everything to lose," says Gibbs Moody, an analyst at Gerard Klauer Mattison who rates the stock a buy. "On the other hand, what happens at times like this is the guy who owns the market tends to win at the expense of those who don't, and that may be what's happening here."
It's that view, that BEA Systems is using the bad times to get a leg up on the competition, that analysts like to subscribe to, even if they note their caution while doing it.
"The strong companies will emerge even stronger, because of their market share gains," says Sarah Mattson, an analyst at Dain Rauscher who rates the company a strong buy. "Then, because of those market share gains, the market consolidates around them." (Her firm hasn't done underwriting for the company.)
If BEA delivers, none of this will be a problem and the company could gain a ton. It is what happens if it doesn't deliver on the high expectations it's setting that investors need to worry about. |
