Initiating CA with Neutral - Analyst Blog
We believe CA Inc. (CA) is currently trading at a P/E multiple of 13.0x our 2010 EPS estimate of $1.70, which is a substantial discount to the industry average and the S&P 500. Historically, the stock has traded in a 5-year trailing twelve month P/E range of 11.1x to 34.0x and we do not expect any major deviation over the next few months. We are initiating coverage on CA Inc. with a Neutral rating and a price target of $23, representing a P/E multiple of 13.5x our 2010 EPS estimate.
The company has delivered in-line third quarter results and provided a decent fiscal year 2010 guidance. CA reported third quarter 2010 revenues of $1.13 billion, up 8.2% from $1.04 billion reported in the year-ago quarter. This is attributed to revenue growth across all its business segments except professional service, as well as revenue growth in North America and other International.
This apart, during the third quarter, the company signed 16 license agreements with values greater than $10 million each for a total of $514 million, compared with 18 license agreements totaling $471 million in the third quarter of 2009.
Acquisitions have helped the company expand its product portfolio, enabling it to enter the cloud computing business and cater to customers across all segments of the IT market.
The company is cash-rich. However, we are a bit concerned about the intense competition in the software & cloud computing space from big players like International Business Machines (IBM) and Hewlett Packard Co. (HPQ). We are also concerned about CA’s high debt balance.
It is one of the leading information technology (IT) management Software Company founded in 1974 and headquartered in Islandia, New York. The company facilitates the process of IT management for enterprises, thereby enabling them to improve the efficiency of their operations and enable them to become more competitive. CA engages in the design, development, marketing, licensing, and support of IT management software products that operate on a range of hardware platforms and operating systems.
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