Mark, what do you like about coms? I don't follow it.
I've liked ITWO this year and if I like what they report this week I'll triple up on this growing 800ib gorilla.
>Monday, January 15, 2001; Page E01
Read the research report on Manugistics Group Inc. put out last week by Credit Suisse First Boston and you'll be told that the Rockville software company's stock, which is up 194 percent in the past year, is still a "buy."
Manugistics, analysts Brent Thill and Erik Swords say, "is emerging as the clear No. 2 within the B2B optimization network." That's business-to-business optimization, the craft of creating computer networks that enable corporations, their customers and their suppliers to do business more efficiently over the Internet.
Citing new contracts with such big names as Cisco Systems Inc. and Juniper Networks Inc., and the December acquisition of Talus Solutions Inc., Credit Suisse First Boston says Manugistics has completed the turnaround started two years ago by chief executive Greg Owens and "successfully beat published street expectations for the past five quarters."
But plug the stock symbol MANU into TheStreet.com, one of the Internet's most influential investor Web sites, and you'll find a different story.
On the same day that Credit Suisse First Boston issued its "buy" recommendation, TheStreet.com guest columnist Whitney Tilson warned of "Manugistics' Mysterious Debt."
"When I examine a company, the number of unanswered questions typically declines as my analysis deepens," said Tilson, a New York money manager. But, he said, when digging into the finances of Manugistics, "the mysteries of the company just seem to expand."
Manugistics last fall took on $250 million in debt, he said. The notes carry only a 5 percent interest rate, but that is to "consume 70 percent of next year's anticipated profits. Any way you look at it, this is a lot of debt."
Because the notes can be converted into stock, they could water down the holdings of Manugistics shareholders, Tilson lamented. If that's going to happen, it might have been better for Manugistics to simply sell stock to raise cash and avoid the interest.
That was just the latest shot at Manugistics by Tilson and TheStreet.com regular Herb Greenberg, who's been on the company's case for a couple of months. The two point out that Manugistics' cash flow has declined, its unpaid receivables have been growing and what looked like a $7 million sale has imploded into an ugly lawsuit.
There is a black and white difference of opinion about Manugistics between TheStreet.com and The Street itself. All 15 Wall Street analysts who follow Manugistics' stock unanimously rate it as a "buy," according to the Bloomberg business news service.
Like the fabled blind men describing an elephant, each with his hands feeling a different part of the pachyderm, it's hard to believe that all the people studying Manugistics are talking about the same beast.
Tilson tries to make Manugistics' financial report "look very mysterious and sinister," says analyst Chris Mortenson of Deutsche Bank Securities, which managed the sale of the $250 million in notes.
The questions raised by TheStreet.com "sound like someone trying to understand what a convertible debt offering was about. Most of the answers could be learned in a Business 101 class," Mortenson says.
"I tend to agree with TheStreet.com," says analyst Todd Bernier of Morningstar, the Chicago company that specializes in independent research on stocks and mutual funds.
Bernier is not one of the 15 analysts counted by Bloomberg as unanimously rating Manugistics stock as a "buy." Consider him the hanging chad in this vote, the somehow uncounted ballot.
For Bernier and Tilson, the bottom line on Manugistics is not that it's a bad company, but that it's a bad investment at the current price, $47.81 at the close of Friday's trading.
Even though Manugistics's latest quarterly financial report was a "blowout" that beat anyone's expectations, "we believe that the company's shares already reflect this strong performance and that investors have become too optimistic about Manugistics' prospects," Morningstar said in its most recent report.
To a certain extent, the differences of opinion over Manugistics are the old argument over whether the glass is half full or half empty.
Credit Suisse analysts Thill and Swords hail the company as "the clear No. 2" in a hot business, behind i2 Technologies Inc. When several companies hook up their computers so they can talk to each other and share information, everybody wins. A manufacturer who knows that a key supplier of raw materials is facing a shortage can compensate for the situation rather than find itself short of supplies.
One of Manugistics' new clients is Mitsubishi Motor Sales of America, which has linked its 500-plus dealerships to improve new car distribution. Mitsubishi has been able to cut the time it takes to get a car to a dealer by 60 percent, to reduce new car inventories by 50 percent and to cut the time a car sits on the dealer's lot by 25 percent.
Only i2 and Manugistics can provide the complete package of software needed to create such money-saving business-to-business computer links, analysts who follow the company agree.
But being "a solid No. 2 to i2" means Manugistics "has got an 800 pound gorilla they're fighting," Morningstar's Bernier says,"I2 is a far better company by every measure you can gauge." Profit margins are better at i2 and revenues are almost five times those of Manugistics. Not only that, but i2 also is growing faster -- 125 percent last year against 96 percent for Manugistics.
Along with putting their own spin on the same facts, the two sides in the Manugistics debate are quick to attack each other.
The company's critics at TheStreet.com are being fed information by short-sellers, who've made bets that Manugistics' stock will fall, say the supporters. No question about that. Short-sellers can be some of the most reliable sources a reporter can find. The good ones diligently dissect financial reports, then go into the field to find out firsthand whether companies are really doing what they say they're doing.
But short-sellers are in it only for the money. Their propensity for overstating their criticism is as well known as their record of exposing overpriced stocks.
On the other side, the analysts who praise Manugistics' stock have their own conflicts of interest. Deutsche Bank made millions managing the recent sale of convertible debt for Manugistics, as analyst Mortenson volunteered before he even answered the first question about the company.
The track record of so-called "sell side analysts" who work for Wall Street firms that sell stocks and bonds for corporations is abysmal. They kept telling their clients to buy tech stocks a year ago, even though valuations were on their way to the highest levels in history. Everyone agrees now that prices were absurd, but it's hard to find an analyst who told clients that.
Yet Wall Street analysts often are the best sources of information investors can find on a company. The good ones understand how the moving parts of arcane industries are connected, and can tip investors to innovations long before they are obvious.
Take, for example, Manugistics's recent acquisition of Talus, which makes software systems that are used by airlines and hotels to set prices based on how many seats or rooms have been sold and how many are likely to be. That same software can tell Amazon.com that with 800 copies of the latest Harry Potter book in stock and 2,000 orders likely to arrive in the next few days, the way to maximize profit is to double the price.
Consumers cringe at that kind of "dynamic pricing" but it is the future, especially when its hooked up to the Manugistics software that links retailers, manufacturers and suppliers.
Imagine a dress designer whose software monitors deparment store sales of its spring frocks and also is hooked up to the garment contractors that sew its dresses and the mills that make the fabric. The Talus system can tell the store the best time to cut prices to clear the racks at optimal profit. And the Manugistics supply chain management system can track bolts of leftover fabric, find a sewing contractor with idle machines and then order up a batch of dresses to capture every possible sale, at the best possible mix of prices.
Morgenson says Manugistics's purchase of Talus "has the potential to be a home run." Bernier calls it "a great acquisition." Even Tilson likes it.
"I can understand why they would say this is a good company," says Tilson, who describes himself as a "value investor" of the Warren Buffet school. "I care just as much about the price I pay, and Manugistics is extraordinarily richly valued by any metric."
"Valuations are in the eye of the beholder," Deutsche Bank's Mortenson responds. "If you look at other companies that have good stories and are growing very rapidly, Manugistics is less expensive than many of them."
Manugistics's stock once was a bargain, compared with i2 shares, says Bernier, but not now, when it is selling for almost 450 times next year's projected profit and i2 shares are closer to 200 times expected earnings.
"Even if it's an up-and-coming company versus the establishment, you buy the establishment," he said. "If a Honda and a BMW are the same price, you buy the BMW."
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