Investor's Corner Year 2000 Stocks Are Running Up As The Clock Ticks
News Alert from Investors Business Daily
Topic: (NASDAQ:GART) Gartner Group Inc New, (NASDAQ:DDIM) Data Dimensions Inc, (NASDAQ:VIAS) Viasoft Inc, (AMEX:KEA) Keane Inc, (NASDAQ:ANLY) Analysts Intl Corp,
What is Corporate America's New Year's resolution? Judging by the reawakening of Year 2000 stocks, companies are making commitments to fix date problems in their computer systems.
Up to 90% of business software is infected with the Year 2000 bug,
estimates Gartner Group Inc., a Stamford, Conn.based research firm.
Software systems that use only two digits to designate the year could
read "00" as 1900, rather than 2000. Firms worldwide will spend $600
billion to fix the problem, according to Gartner.
But less than 15% of businesses have finished initial assessment
and planning of their Year 2000 projects, Gartner says. It expects
the remaining 85% to begin remediation and testing in the next six months.
"1997 was the year of assessment; '98 will be the remediation
phase," said analyst Russell Welty of Hanifen Imhoff Inc. "People who started (conversions) a little late are going to have to get their
mission-critical systems done first."
Investors' interest in Year 2000 companies had waned much of last
year as they wondered what would happen once 2000 had come and gone.
Those worries have subsided as clients scramble to become Year
2000-compliant. Most of the millennium players have more business
than they can handle. And that backlog should last well beyond 2000,
analysts say. Money is being poured into quick fixes, which will
have to be resolved later.
"The quick and easy way just creates a lot of maintenance in the
future, but that's where the industry has shifted," said analyst Alex
Arnold of H.C. Wainwright & Co.
Investors boosted shares of tool makers such as Data Dimensions
Inc. and Viasoft Inc. in early '97 but lost interest until a few
weeks ago. Service providers like ,Keane Inc. and Analysts
International Corp. have fared better.
The concern with software makers is that their products won't be
needed after the conversions are done. Service providers, though,
will be in demand to maintain the changes. Many service providers
are striking long-term relationships with clients to help with the
upkeep, analysts say.
"I think the whole sector of information technology services is
now benefiting from Year 2000-related expenditures," said analyst
Paul Shain with Robert W. Baird & Co.
About 50% of Viasoft's business now comes from Year 2000 sales.
That's up from about 25% to 30% a year ago, said analyst Kris Tuttle
of Soundview Financial Group.
Tuttle's not worried that Viasoft will see a slowdown after the
Year 2000 conversions. "They have quite a few products, and most of
their existing products have been around for upwards of 10 years," he
said. "Most of the technology will be needed after 2000."
But Punk Ziegel & Co. analyst Tarun Chandra voices some concern.
"If you have 50% or more revenues coming from Year 2000, it becomes
that much harder to backfill that steady stream of revenues."
Even so, he doesn't see a precipitous drop in Year 2000 spending
after 1999. The major players "all have businesses that will outlast
Year 2000," he said.
Welty of Hanifen Imhoff Inc., who follows service providers,
agrees. "The opportunity is still tremendous past Year 2000 - I.T.
demand will remain high in the years to come."
He thinks the service providers will rally in '98. The '97
dropoffs in stock price resulted from all the talk about Year 2000,
which didn't translate into a great deal of revenue in the third
quarter.
"Where's the money being spent? The reality is, there wasn't
money in the budgets," Welty said. "This is the first part of the
money you'll see being spent to be contracted for Year 2000 work to
be done."
Computer Horizons Corp., a service provider, is breaking out of a
24-week base. It has IBD's highestpossible Earnings Per Share rank
of 99 and a Relative Strength of 87. Profit growth has accelerated
to the triple digits the past two quarters, from 0% to 23% to 138% to
130%. The stock fell 44% from its July peak through Nov. 12, but has
rallied about 71% since.
Analysts International, which has a 90 EPS rank and 91 RS, rose
89% last year. The service provider has posted double-digit earnings
growth of at least 27% and sales growth of more than 29% the past
five quarters.
Keane Inc. is at new highs. Earnings have grown steadily the past
four years. Analysts expect a 76% rise in '97 and 36% this year.
EPS rank is 97 and RS is 96. Sales expanded 22% to $467 million in
'96 from $383 million in '95.
Among other Year 2000 stocks, Ciber Inc., Information Management
Resources Services Inc. and TSR Inc. all have EPS ranks of at least
98 and RS of 86 or more.
With the clock ticking for firms to make their conversions and a
new budget cycle this year, Chandra remains bullish on the sector.
"We continue to think that the earnings drive we have seen will
continue into 1999 and beyond," he said.
He thinks earnings growth can expand into the next seven to eight
years from merger activity and higher spending by companies on I.T.
issues.
Another area that both the tool makers and service providers could
benefit from is the proposed European currency conversion. Analysts
say most Year 2000 firms are at least dabbling in the project,
because it's a similar problem to what they're dealing with now.
It's difficult at this point to gauge how much business a company
can get from Europe, with no concrete details yet available. "I
think without a real firm time line of when the European Monetary
Union goes into effect, we're uncertain of the scope and scale," said
Shain. "But it's indicative of the need for these companies."
Viasoft has been working on currency conversion products. And
many European companies are looking to do both Year 2000 and currency
conversions, Tuttle says.
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As I have stated before, the tool vendors and the service providers such as KEA, will be the first ones to move. Following them will come the conversion houses. (if you can't find the programmers to use the tools.....)
I currently own 3,000 shares of KEA and I believe that by mid Q2 the stock should be over $50.00
Once the bulk of the business flows in and hits the limited to non existent supply of resources, it is my opinion that the conversion houses will be where the code will flow.
I believe that companies will either contract to them for conversion work directly, or even if they sign on with a service provider such as KEA, the limited resources will also force them to use the conversion houses.
Stay Tuned. |
