CA Inc. (CA) is scheduled to announce its second quarter 2011 results on October 21, 2010, after market close, and we do not see too much variation in analyst estimates at this point.
 
First Quarter Overview
 
The company reported decent first quarter 2011 numbers, with earnings per share (EPS) of 53 cents exceeding the Zacks Consensus Estimate of 39 cents.
 
CA delivered $1.091 billion in revenues, up 5.0% from $1.044 billion reported in the year-ago quarter. Revenue growth was noticed across all business segments except Professional Service. Within the geographical segments both North America and other International segments contributed in a major way. New license agreements totaled 6, with values greater than $10.0 million each, which are expected to generate $188.0 million in revenues. Year-over-year bookings declined substantially by 37.0% as a result of lower renewal rate.
 
Operating income in the first quarter was $324.0 million flat, compared to the year-ago quarter and net income of $217.0 million, up from $195.0 million reported in the year-ago quarter. Moreover, CA is cash rich and exited the quarter with cash and cash equivalents of $1.17 billion, while long-term debt balance stood at $1.55 billion.
 
During the first quarter conference call, management projected fiscal year 2011 revenue growth in the range of 3% to 5%, translating to revenues of $4.40 billion to $4.50 billion. Earnings per share on a GAAP basis are expected to grow in the range of 5% to 13%, which translates to EPS of $1.51 to $1.63. Non-GAAP EPS are expected to range between $1.82 and $1.94.
 
Agreement of Analysts
 
Out of the eight analysts providing estimates for the second quarter, fiscal year 2011 and 2012 none have lowered or raised the estimates in the last thirty days.
 
The unchanged estimates also point to the fact that there were no major catalysts during the quarter that could drive results. Consequently, analysts are sticking to the estimates projected post first quarter earnings.
 
Cloud computing is the area where the company is investing much of its financial and human resources and we agree that prospects in this segment are bright. However, stiff competition that CA faces in this area should also be kept in mind. The space is crowded with big and established players, which will undoubtedly temper CA’s growth prospects.
 
Some analysts believe that, the company’s execution ability has been a mixed bag with a combination of success and failures. Slow improvement in the IT spending environment, increased investment in cloud and virtual infrastructures and enhancement of the new product portfolio should help the company to post marginally better results in the third quarter. The portfolio renewal rate might act as a dampener as the company has guided a 25% lower renewal rate as against the comparable quarter last year.
 
Magnitude of Estimate Revisions
 
The magnitude of revisions is also minimal since the company reported its first quarter results. Overall, estimates for the upcoming quarter have remained constant over the last 90 days 44 cents, with no changes in the Zacks Consensus Estimate over the past 30 days as well.

For fiscal 2011, Zacks Consensus Estimates have inched up to $1.79 from $1.78, 90 days ago. The estimate has also moved up by the same magnitude over the past 30 days. For 2012, Zacks Consensus Estimates have gone down from $1.92, 90 days ago to $1.91, with an improvement of a penny over the last 30 days.
 
Recommendation
 
We are optimistic about the company’s positive outlook for fiscal year 2011, its enhanced product portfolio, growing customer base and a revival in the macroeconomic scenario.

On the other hand, we are a bit concerned about intense competition in the software and cloud computing space from big players such as International Business Machine (IBM) and Hewlett-Packard Company (HPQ).
 
We currently have a Neutral recommendation on CA Inc., with a short-term Zacks Rank #3.

 
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