FYI>
RATIONAL SOFTWARE CORP (RATL) 18 3/4 -3 3/4. A value play, or not a value play, that is the question which we
are posing. Only one trading session after Robert M. Cohen analyst Keith Bossey started coverage of the stock with a
"buy" rating and an eye-popping price target, shares of this developer of software system management solutions are on the
retreat due to rumors that Oracle Corp will soon introduce a competing product. After looking at the company's
fundamentals Friday, we decided not to write a Story Stock, despite the analyst's potentially achievable price target of $37
(+97% from current level), because RATL's earnings and growth pictures were still too cloudy, in our opinion, to warrant
such bullishness. But given the latest activity in the stock, Rational shares are at least an interesting story, worthy of a little
research. According to Mr. Bossey, Wall Street has not looked favorably on the company's acquisition binge, despite
the moves nearly doubling RATL's revenue base and expanding the company's sales channel. He believes that other analysts
are either failing to understand the company's strategy or are simply cynical of management's ability to pull-off this
growth-through-acquisition strategy. And, why not, after so many highflying companies have imploded as a result of their
inability to efficiently merge acquired companies. Based on current First Call estimates, RATL is expected to earn $0.85 for
1999 (range $0.81-$0.90), giving the stock a multiple of 22. Though the issue may seem fairly cheap when placed against
forecasts for long-term growth of 30%, one must also take into account that stocks of companies with earnings visibility as
cloudy as RATL's typically trade at a discount to growth based on the above-average risk involved in owning the shares.
52-week range: $10-$44.25. |
