Tuesday, October 28, 2014

CA Technologies Is a Solid Long-Term Buy

ca technologies ca stock 185 CA Technologies Is a Solid Long Term Buy
CA Technologies still attractive ... even after an unimpressive second-quarter earnings report

Earlier this week, CA Technologies (CA) — formerly CA, Inc. — released its second-quarter fiscal 2015 earnings results, and while the company provided mostly just so-so results, there’s still plenty of reason to believe in CA stock long-term.

Adjusted earnings of 65 cents per share were well lower than the year-ago quarter’s 83 cents, but still enough to beat analyst estimates of 62 cents. Meanwhile, revenue was $1.08 billion, slightly below expectations of $1.09 billion and down 3% from $1.1 billion last year.

CA Technologies Chief Financial Officer Richard Beckert explained that a decrease in the company’s new mainframe products varies from quarter to quarter, and was a significant contributing factor. However, sales are “in line with historical mainframe renewal attach rates,” and mirror the overall mainframe market.

Perhaps one of the most significant factors in the company’s report involved services revenue, which Beckert stated will likely “decrease more than total revenue during fiscal 2015 compared to fiscal 2014.” Because CA has been taking steps to “(de-emphasize) non-core government services subcontracting engagements” and instead focus on only those arrangements most likely to drive new product sales, quarterly services revenue was down 8%.

The total revenue decrease is expected to be 2%, leading to FY2015 revenue between $4.27 billion and $4.33 billion, and EPS of $2.40-$2.47. However, the consensus is higher at $4.37 billion and $2.46 per share, respectively. Chief Executive Officer Michael Gregoire stated that the company’s goal is single-digit revenue growth.

The Products That Will Lead CA Forward

Earlier this month, the company announced that it was named a leader in Forrester’s analysis of API management solutions providers. In the report, Forrester stated that CA Technologies “is the only vendor to embed both service life-cycle management and runtime management products within its API management solution.” Additionally, CA’s API product was described as having the best security and integration features in the evaluation, with a mid-range price.

On the earnings call, Gregoire stated that, “During the second quarter our API management new sales more than doubled year-over-year and exceeded our internal plans,” and those results are clearly supported by Forrester’s research.

All of the company’s three primary areas of focus — cloud management, DevOps (mobile), and security — appear to have significant potential for future sales and revenue generation. Late last month, CA announced the release of a sophisticated behavioral neural network authentication model that assess risk with respect to online credit card transactions. The company dubbed its new fraud protection strategy Risk Analytics and described it as a way to improve and enhance the purchasing experience for both card issuers and customers by reducing friction during checkout, improving the accuracy of fraud detection algorithms, and offering card issuers “unprecedented flexibility” and control.

The launch of CA Technologies’ cloud management service earlier this year had a positive impact on the company’s quarterly sales revenue, and looks to be a strong contender in the hosted IT management enterprise services market.

Additionally, CA’s adoption of managed service offerings, or MSOs, allows the company to service a larger portion of the enterprise market by allowing customers to further customize solutions tailored to their individual needs.

Bottom Line

Overall, the CA Technologies earnings report contained nothing shocking or overly worrisome, but rather served to support FBR Capital’s “market perform” rating and Barclay’s recent upgrade to “overweight.”

Considering the rapidly expanding SaaS market, and CA’s solid history of expertise in IT service management, this company is sure to be a solid addition to any long-term portfolio — even amid the less-than-sparkling earnings results of Q2.

As of this writing, Greg Gambone did not hold a position in any of the aforementioned securities.

Find the original article on InvestorPlace.com