BEA Systems (BEAS) - Undiscovered Growth Stock Message Board

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Technology Stocks : BEA Systems (BEAS) - Undiscovered Growth Stock

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To: Stock Puppy who wrote (2438)	11/16/2006 1:30:37 PM
From: zx	Read Replies (1) of 2477

Citigroup Investment Research “Reaction to Q3 Results Provide Buying Opportunity” November 16, 2006 BEAS delivered 3Q results that were in line with the midpoint of its guided range despite less than par execution in certain regions which led to the replacement of the head of the UK and also the naming of a new head of EMEA sales. The new EMEA head is a long-time BEA employee and management credited him with quickly improving results in Germany which was a trouble region last quarter. Management highlighted execution was very strong in the US Federal market, the Americas, the Nordic region and China. A key metric in the quarter, AquaLogic revenue, continued to grow sequentially (to around $28M) driven by sales strength of its Enterprise Service Bus and its Fuego BPM product. In addition BEAS announced a partnership agreement with the largest network equipment provider in China, Huawei, which should lead to even greater penetration in the region. Looking into FY08, we estimate license growth of 11% (incremental $65M; vs. street of $50M) driven by continued momentum in AquaLogic (+$40M or 38% y/y) and a more significant contribution from theWebLogic Communication Platform (WLCP) (+$20M y/y). Expectations for WLCP had been high for over a year, and we are finally starting to see the 40 pilot projects turn into booked deals. A major US cellular provider did sign a multimillion dollarWLCP deal in Q3, but accounting issues dictate revenue recognition over future periods. This completed deal and others give us confidence we’ll see material revenue fromWLCP in FY08. What to do with the stock: BEAS’ stock was down after hours as we believe it became the victim of expectations creep. BEAS is currently in their traditionally strong Q4 which guidance reflected. Bottom line is BEAS’ fundamentals remain sound, and its leadership status in the SOA space dictates the company should disproportionately benefit from multiyear SOA adoption projects many enterprises are beginning to undertake.We reiterate our Buy rating, $18 PT, which represents 25% upside from the AH close of $14.35.

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