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As of this writing, CA’s stock price was up roughly 6% since the company issued its results on Wednesday. And some analysts are saying CA’s performance in its fiscal year 2009—in which revenues dropped by 5%—underscore the company’s ability to thrive during a severe downturn in technology spending.
Indeed, many of these analysts point out that CA’s revenues would have climbed 2%—and bookings 6%—during the fourth quarter were it not for the dollar’s recent strength against other currencies.
But that seems like a thin reed on which to pin a lot of hope. Even CEO John Swainson declined to venture a guess as to when tech spending would turn around. While he noted in a statement on Wednesday that he expects the recession to continue through at the least the early part of CA’s new fiscal year, he noted that “we can’t predict when the recovery will begin.”
Meanwhile, the company once known as Computer Associates reduced its revenue outlook for the coming year to below what the Street is forecasting.
That prompted analyst Scott Zeller of Needham to reduce his 2010 profit forecast, from $1.64 per share to $1.58, but not his price target of $22, according to Business Week. At its current price of $18, some observers contend the stock is undervalued because it hasn’t participated in the recent rally, even though CA’s sales haven’t fared as badly as those of other tech firms.
The value crowd also points to the fact that at 9.5 times, the stock is trading at a low multiple of cash flow. But as a study we discussed the other day pointed out, cash flow at tech companies looks likely to fall substantially in the coming year.
What’s more, CA's profit last year was due to management's aggressive cost-cutting. The question here: how much more can it pare?
Granted, CA turned a $1.1 billion profit (before interest and taxes) on revenue of about $4.3 billion in its fiscal year 2009. Those are pretty healthy numbers given the lousy business climate. But in the coming year, investors better hope those green shoots spotted in the company’s fourth quarter are signs that corporate tech spending is coming back.
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