here's another brokerage report, CATP.
Despite these concerns, we are maintaining our 2/1-H long-term buy rating
on CATP. We believe that over the course of 1999 the company will either
demonstrate improved growth dynamics or be acquired at a premium. With
over $600 million of trailing revenue, including an Internet Services unit
that is expected to do over $100 million in 1999, CATP would be very
additive to a larger services organization, in our opinion. Our revised
long-term price target is $22.50 (25 times our 1999 EPS estimate of $0.90).
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12:45pm EST 19-Mar-99 Robinson-Humphrey (KEIL 404-266-6833) CATP
CATP - Lowering 1999 and 2000 estimates
--SUMMARY:------------------------------------------------------------------
* CATP pre-releases significant Q1 revenue and earnings shortfall.
*Underperformance driven primarily by internal issues, secondarily by
slower ERP services demand.
* Lowering our 1999 and 2000 EPS estimates from $1.12 and $1.43 to $0.72
and $0.90, respectively.
* Lowering our long-term growth rate assumption from 30% to 25%.
* Maintain 2/1-H rating with a revised long-term price target of $22.50.
--OPINION:------------------------------------------------------------------
DETAILED ANALYSIS:
Last night CATP pre-released Q1 earnings, with revenue and earnings
significantly short of our expectations. Management now expects Q1
revenue in the $148 million to $151 million range, and EPS in the $0.12 to
$0.14 range. CATP cited several reasons for their shortfall, with the
biggest impact from internal dislocation due to their reorganization to a
service line orientation from a geographic orientation (see 2/4/99 note).
In addition, CATP indicated its lack of familiarity with new forecasting
systems and a slowdown in its ERP services as further reasons for its
disappointment.
We note that the timing of this pre-release is especially discouraging.
Just five weeks ago CATP held an analyst meeting (see 2/11/99 note) at
which time management was very bullish regarding its 1999 prospects and
stock. Since that meeting, however, we have observed several senior
managers selling shares at the $30+ level. These issues underscore, in
our opinion, the long-term credibility challenges that CATP now faces with
the investment community.
Consistent with the lower end of management guidance, we have reduced our
1999 revenue and EPS estimate from $762 million and $1.12 to $650 million
and $0.72. While a considerable reduction, to make these numbers CATP
still needs to see a significant pickup in second half business, and
therefore our estimates are not necessarily "conservative". We have also
reduced our 2000 outlook, taking down our revenue and EPS estimates from
$952.5 million and $1.43 to $780 million and $0.90. Additionally, we are
trimming our long-term growth rate assumption on CATP from 30% to 25%.
Looking ahead, we see three short-term issues that concern us:
1. The possibility of accelerated employee turnover in Q2, especially
with the recently re-priced options now under water.
2. Potential disruption in the selling process due to customer concerns
about internal stability.
3. Potential difficulty recruiting new consultants in a competitive
recruiting environment in certain service lines, especially Internet services.
Despite these concerns, we are maintaining our 2/1-H long-term buy rating
on CATP. We believe that over the course of 1999 the company will either
demonstrate improved growth dynamics or be acquired at a premium. With
over $600 million of trailing revenue, including an Internet Services unit
that is expected to do over $100 million in 1999, CATP would be very
additive to a larger services organization, in our opinion. Our revised
long-term price target is $22.50 (25 times our 1999 EPS estimate of $0.90). |
