Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : RATIONAL SOFTWARE- BUY OR HOLD -- Ignore unavailable to you. Want to Upgrade?

To: ratlong who wrote (2963)	9/28/1999 2:01:00 AM
From: Asymmetric	Read Replies (1) \| Respond to of 3115

Highlights from Enterprise Software Tour September 21, 1999 - 7:29am CREDIT SUISSE FIRST BOSTON CORPORATION U.S./IT Software/Enterprise Infrastructure Rational Software (RATL) BUY MID CAP Summary Suites-related bookings contribution is currently running about double management's original expectations with several new customers this quarter including Microsoft, IBM, US West, and AT&T. Strategic relationships with MSFT and IBM continue to yield significant endorsement and leverage for RATL, and the Company is exploring incremental channel-related opportunities (i.e. IBM Global Services). As Y2K becomes a non-issue towards the end of 1999 and into the early part of 2000, we expect RATL to release the backlog valve and report more upside to our estimates without sacrificing predictability. The Company is tracking to our September quarter estimates of $125 million and $0.20, and we reiterate our BUY rating and 12-month price target of $44 ( suggests 39% upside from current levels). Price Target Mkt.Value 52-Week 09/20/991 (12mo.) Div. Yield (MM) Price Range USD 32.56 $44 None $3,063.9 $10.87-40.00 Annual Prev. Abs. Rel. EV/ EBITDA/ EPS EPS P/E P/E EBITDA Share 03/01E $1.16 28.1X 117% 03/00E 0.91 35.8 147% 03/99A 0.64 50.9 191% Jun Sept Dec Mar FY End 2001E NA NA NA NA Mar 31 2000E $0.16 $0.20 $0.25 $0.30 1999A 0.09 0.14 0.19 0.23 ROIC (06/99) NA Total Debt (06/99) NA Book Value/Share (06/99) 3.30 WACC (06/99) NA Debt/Total Capital (06/99) NA Common Shares 94.1 EP Trend2 NA Est. 5-Yr EPS Growth 35% Est. 5-Yr. Div. Growth NA 1On 09/20/99 DJIA closed at 10823.90 and S&P 500 at 1335.53. 2Economic profit trend. Rational Software is a leading provider of software development and testing tools used by Web, Windows and UNIX programmers and testing professionals to build, test, and deploy mission critical software applications. Investment Summary Last Wednesday, Paul Levy (Chairman) and Tim Brennan (CFO) presented at our Fall '99 Enterprise Software Tour with particular emphasis on product strategy , strategic relationships and financial model. RATL continues to benefit from greater dependency on software and Internet time-to-market pressure as its "best in class" development and testing tools help increase quality, reduce cost, and increase productivity. Having emerged as the world's largest merchant market supplier of application development and testing solutions, RATL is benefiting from scale-related leverage and the laws of increasing returns. The Company is experiencing resurgence in the Asia-Pacific marketplace, which represented 10% of total revenue in the June quarter. Suites-related bookings contribution is currently running about double management's original expectations with several new customers this quarter including Microsoft, IBM, Ericsson, Merrill Lynch, Calico, KLA, US West, AT&T and Universal Studios. RATL's differentiated Suite strategy appears to be driving shorter sales cycles, higher ASPs and deeper penetration of both new and existing accounts. In Q1:FY00 (June), Suites grew by more than 50% and accounted for more than 15% of total product revenue. The Company's ClearCase product, which is not currently not included as part of Suites, ix experiencing continued strong demand with particular strength on the Windows platform. Microsoft deployment likely to be largest deal in the September quarter and appears to be generating near-term leverage with RATL's other large prospects. According to management, currently 400,000-500,000 of Microsoft's 7 million developers are trained on RATL technologies. Company continues to invest in sales capacity ahead of the curve and is likely to be 50-60% of the way toward meeting FY00 (March) goal of 400 quota- carrying reps. by the end of Q2:FY00. Biggest change in last several months has been overall awareness of RATL in the market by customers and partners, which has made it easier to call higher in organizations and close larger transactions. RATL's Windows NT business, which represented 70% of product license bookings in the June quarter, remains very strong in the current quarter but price parity makes management less focused on the exact split between Windows and UNIX contribution. While management acknowledges lagging Mercury Interactive (MERQ) from the standpoint of eCommerce-related testing, RATL is ramping up its marketing campaigns to gain broader mind share. Strategic relationships with MSFT and IBM continue to yield significant endorsement and leverage for RATL's products and strategy, and the Company is exploring incremental channel-related opportunities (such as IBM Global Services). RATL currently has a joint development and marketing agreement with IBM for eBusiness development and testing software. Its current intiative focuses on integrating IBM's Application Framework for eBusiness (VisualAge, WebSphere application server) with Rational Suite products (DevelopmentStudio, PerformanceStudio, TestStudio). With MSFT, Rational announced in August an extension of the strategic relationship between the two companies, centered on the development of enterprise web applications in conjunction with Microsoft's development tools (Visual Studio) and technologies (DNA, DCOM, etc.). These strategic relationships, combined with contribution from subscription- based deals (approx. 10% of license bookings today), continue to provide RATL with excellent revenue visibility. The Company's growing installed base is producing meaningful maintenance streams such that each quarter roughly 25-40% of total maintenance has already been committed. As Y2K becomes a non-issue towards the end of 1999 and into the early part of 2000, we expect RATL to release the backlog valve and report more upside to our estimates without sacrificing predictability. We believe the as reported revenue growth rate for FY00 could realistically be 40% (versus our 31% estimate) combined with margin expansion beyond our 20% estimate for the fiscal year. The Company is tracking to our September quarter estimates of $125 million and $0.20, and we reiterate our BUY rating and 12-month price target of $44 (suggests 39% upside from current levels). CREDIT SUISSE FIRST BOSTON CORPORATION CREDIT SUISSE FIRST BOSTON CORPORATION