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eBusiness Intelligence Stocks - Slicing and Dicing
Data
There are
essentially two ways to manage in times of economic
uncertainty.
Duck and
cover or duck and analyze.
I'm
betting that the vast majority of corporations will eventually
choose the latter.
In other
words, one of the best ways to survive the current economic
slowdown may be to invest in business analysis tools that help
drive profitability and give corporations a clear real-time
view of their existing systems.
Thus,
tools that help tie together existing legacy systems will
prove to be invaluable- now and well into the future.
That's why
I find it likely that corporations - from large to small- will
suck it up and continue to invest in an area frequently known
as eBusiness Intelligence software.
They
really have no other choice.
While
companies in this sector have watched their valuations implode
along with the rest of software stocks, this is a group poised
to rebound strongly as the IT spending environment begins to
improve.
In fact,
FAC Equities believes that the market for eBusiness
Intelligence software is now at less than 10% of full
penetration and will grow 40% over the next five years.
That's solid growth to ride.
With this
in mind, then, I decided to take a look this week at Business
Objects, Hyperion Solutions and Cognos, three of the most
well-known eBusiness Intelligence players.
Let's take
a closer look under my analytical microscope and see what I
found out.
Business Objects [BOBJ]
Founded in
1990, Business Objects has emerged today as arguably the
largest business intelligence software provider in the
industry. The company now has more than 13,100 customers
in over 80 countries, ranging from technology companies
like AT&T [T], Redback Networks [RBAK] and
Verizon [VZ] to Old Economy blue chips like Goldman
Sachs [GS] and Dresdner Bank. The company's
wildly popular flagship product, BusinessObjects, gives
customers a real-time view of key business metrics across
their business.
While the
current IT spending funk has definitely eaten into the firm's
near term growth opportunities, Business Objects is still
humming along quite nicely. For the most recent quarter,
sales grew 35% to $98.3 million, while profits jumped 50% to
$7 million or 16 cents per share. Business Objects
expects to report sales of $420 to $430 million for the year,
which would still represent healthy 20% annual sales
growth. On the earnings front, BOBJ expects 2001 EPS to
be in the range of 71 to 75 cents per share.
Valuation
wise, Business Objects is clearly a gamble at current levels,
but an interesting one at that. At a recent price of
$26, BOBJ checks in with a forward 2001 P/E of roughly 35 with
still respectable 10-11% earnings growth projected. More
importantly, EPS is expected to pick up and grow 30% to 94
cents per share for 2002. If one believes that the worst
is already behind software stocks in general (as I do), then
now is the time to scoop up BOBJ as it hovers near its 52-week
low.
Hyperion Solutions [HYSL]
Much like
Business Objects, Hpyerion provides managers with software
that helps analyze the disparate data found across the
enterprise. More than 6,000 companies, including 86 of
the Fortune 100, currently use the company's technology
solutions. Unlike Business Objects, though, the past
year has been quite a bear for the company's employees and
shareholders as it struggles to close new sales. Not
surprisingly, then, Hyperion announced plans last month to
fire 15% of its staff as part of a broad restructuring
effort.
The U.S.
"economic slowdown" has clearly been in full effect at
Hyperion. Sales grew only a sluggish 4% to $130 million
in the most recent quarter, as software license revenue
actually declined from $62 million to $55 million.
Hyperion is definitely in more than just a macro-economic
induced rut. The firm's bottom line also took a big step
backwards last quarter, as the company reported a quarterly
loss of $1.3 million, compared to profits of $6.6 million last
year.
On the
plus side, Hyperion still has a sizeable war chest in its
possession, having ended last quarter with $222 million in the
bank. With HYSL shares having now declined from a
52-week high of $35 to a recent price of $15.50, roughly half
of the stock's capitalization is now backed in cash.
However, with Hyperion expected to report flat sales and
negative earnings growth for the year, I have trouble seeing
the clear catalysts that will move this stock significantly
higher in 2001.
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Cognos
[COGN]
Ottawa,
Canada based Cognos has also found itself experiencing very
Hyperion-like trials and tribulations lately. The
company surprised analysts last month when it announced that
at best it would breakeven in its fiscal first quarter, but
that an operating loss of $4 million was possible. Wall
St. had been expecting a profit of 4 cents per share. As
part of the news, Cognos also announced that it would fire 300
workers or roughly 10% of its total workforce.
This first
quarter earnings warning came only three months after the
company issued a profit warning for its fiscal fourth
quarter. Thus, saying that analysts' 2001 earnings and
revenue projections look suspect to me right now would be an
understatement. This much I do know. Wall St. has
sliced COGN's 2001 EPS estimate from 83 cents to 44 cents in
only the past 90 days! Cognos announced Thursday that it now
expects to post fiscal 2002 earnings of 43 cents per share.
Trying to
find a positive side to COGN right now amidst its earnings
warnings and other problems isn't easy right now. After
all, 14 analysts currently all have a HOLD (read- SELL) rating
on Cognos! Further, the company reported a first quarter
decline in both sales and earnings. Until I see if
Cognos can actually come through the first quarter and meet
its numbers - not warn again- then I see no reason to play
with COGN. BOBJ is hands down the best play in the space
now.
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