Cambridge's 3Q Report, Outlook Push Dn Computer Svcs
Stks
By Maria V. Georgianis
NEW YORK (Dow Jones)--The prospect of Cambridge Technology Partners Inc.'s (CATP) lower-than-expected earnings growth is dragging down other computer services stocks Wednesday.
Many of these stocks have been pressured by some of the same issues that affected Cambridge Technology in its third quarter.
Cambridge Technology, which reported third-quarter results before the market opened, blamed competition and a diversion of technology spending because of the year 2000 problem for disappointing results from its rapid application development, or RAD, business.
During its third-quarter conference call after the market opened, Cambridge Technology told analysts it believed it could grow twice as fast as the industry's 17% growth rate.
The company didn't provide any official 1999 earnings guidance. The consensus estimate is $1.35, representing a 42% increase over 95 cents projected for 1998.
BT Alex. Brown Inc. analyst Ed Caso said he expects earnings to rise 35% or more, down from previous guidance of 40% to 45%.
Anticipating a slowdown in growth earlier in the month, Merrill Lynch & Co. analyst Richard Park cut his 1999 earnings estimate to $1.28 from $1.35 and set a 30% long-term growth rate on earnings and revenue.
Last month, Cambridge Technology lowered its 1999 revenue growth rate projection to 40% from a 45% to 50% range, citing a shift in clients' technology spending to deal with the impending year 2000 computer problem.
The company Wednesday reported earnings of 25 cents, in line with the consensus estimate and above year-ago earnings of 17 cents. However, analysts questioned the quality of the reported earnings because Cambridge Technology had a lower tax rate and an investment gain in the quarter.
Without those benefits, earnings would have been 23 cents, said Adams Harkness & Hill Inc. analyst Mark D'Annolfo.
Cambridge's third-quarter revenue of $153.1 million was $10 million to $12 million lighter than analysts' estimates, and its growth of 31% in the quarter was lower than the 52% increase for the second quarter.
The company blamed the slower revenue growth on weakness in its North American RAD, business, which accounts for about half its total revenue. Lower growth in RAD services slowed overall net growth in North America to 23% from 53% in the second quarter.
Computer services companies' ability to come to grips with the potential deferral or cancellation of technology projects because of the year 2000 has weighed heavily on services stocks.
In addition, the weakness of the financial services sector because of the global economic turmoil is leading to re-evaluations of technology budgets. In the past, this sector has been a leading consumer
of technology.
In the 10% global workforce reduction announced Tuesday, Merrill Lynch & Co. (MER) said it would trim 900 consultants, mainly involved in technology projects.
In recent trading, Cambridge Technology was off 4 3/8, or 22.6%, at 15; Ciber Inc. (CBR) was down 2 1/16, or 10.8%, at 17; Keane Inc. (KEA) fell 3 7/8, or 11.2% to 30 5/8; Sapient Corp. (SAPE) was down 12, or 1.5%, to 32 7/16; and RWD Technologies Inc. (RWDT) lost 2 15/16, or 18.3%, at 13 1/8.
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