CA Inc on a Roll – Analyst Blog

Leading IT management and software company CA Inc. (CA) has been placed in the “Leaders” quadrant by renowned technology research firm Gartner, in Gartner’s “Magic Quadrant for Application Performance Monitoring” report. The technology research major has reached this conclusion after analyzing and evaluating the performance of 19 deserving application management software companies.

 

As per the findings of this report, the IT major’s byte code instrumentation-based Introscope technology has been recognized as the most effective technology available for deep-dive monitoring application server software and other middleware. The company’s innovative products are expected to help increase its customer base.

 

Moreover, CA has been forming relationships with peers in the cloud computing space. The company recently announced that it has entered into an agreement with a privately held cloud computing company 3Tera Inc., which we believe will strengthen its cloud computing business, making it a complete service provider. CA has also been recognized for its work in Introscope technology.

 

CA has also signed 16 license agreements during the third quarter of fiscal 2010 for a total of $514 million, with values greater than $10 million each. This compares with 18 license agreements totaling $471 million in the third quarter of 2009.

 

The company reported decent results in the last reported quarter, with EPS of 43 cents, exceeding the Zacks Consensus Estimate by 1 cent and revenue of $1.13 billion increasing 8.2% year over year. CA also provided a positive outlook for full fiscal year 2010.

 

For the upcoming quarter, the Zacks Consensus Estimate for CA is 40 cents, below the most accurate EPS estimate of 43 cents, leaving some room for a decent upside potential. The company has witnessed an average earnings surprise of 6.20% in the last 4 quarters, and we expect this trend to continue, as the company is venturing into new businesses and rolling out quality products.

 

CA is cash rich. However, we are a bit concerned about the intense competition in the software & cloud computing space from big players such as International Business Machines (IBM) and Hewlett-Packard Co. (HPQ). We are also concerned about CA’s high debt balance.

 

We currently have a Neutral recommendation on CA shares.