Thursday, July 27, 2006

Color on quarter: Business Objects (BOBJ)

- The analyst community is surprised following stronger than expected results and guidance issued by Business Objects (NASDAQ:BOBJ) last night. Note that 20 days ago the co gave a pretty dismal profit warning for the qtr, causing the stock to sell off badly. We have at least one firm upgrading the shares this morning.

* CSFB is out upgrading their rating to Outperform from Neutral.

* Merrill Lynch notes that although still a solid miss, Business Objects' 2Q results came in significantly better than preannounced results. Management lowered its 2006 outlook to reflect the weaker 2Q but the above revised consensus expectations appear reasonable. Europe was down 8% Y/Y and represented the most significant source of weakness, while APAC turned in flat Q/Q results showing signs of stability. Though the company closed just 4 deals over $1mn, the 113 deals over $100K compared favorably to 96 in 2Q06. Americas delivered strong results across all product segments.

Firm is raising their forecasts modestly to adjust for 2Q results and improving operating efficiencies. For 2006 they are raising revenues to $1,21mn from $1.20bn and raising Pro Forma EPADR (ex option expense) to $1.51 from $1.40. For 2007 trimming sales to $1.32bn from $1.43bn and raising EPADR by $0.05 to $1.65. Reiterates Buy opinion and $32 price objective.

* Goldman Sachs thinks investors are likely to be somewhat relieved Business Objects' reported 2Q results were not as ominous as they first appeared in the negative preannouncement July 6 (pro forma EPS actually in management's initial guidance range). However, in firm's view, management's more optimistic outlook for the remainder of the year assumes that the problems executing in EMEA and closing large transactions were relatively short-term in nature and can be fixed quickly. The company is reassessing its forecasting methods and close rate assumptions and believes new incentives can spur more rapid upgrades to XI release 2 in the installed base. While they are encouraged, efforts to improve execution could take a few quarters, and they continue to believe that the BI market is becoming more competitive, particularly as Microsoft and SAP make more aggressive moves with their own attractively priced bundled capabilities. 3Q is seasonally slow and improvement may be more weighted to 4Q. Ups their price tgt to $26 from $24. Maintains Neutral.

* Banc of America remains buyers of the stock under the premise that the major issues in Europe, including potentially higher sales org attrition and slower migration spending for the new XI Release 2 products, can be overcome by the end of the year. Maintains Buy and $30 tgt.

Notablecalls: My jaw almost dropped when I first saw the number BOBJ had put out. I bet that Citi analyst that downgraded the shares yesterdat morning had a restless night. I suspect the shares will trade higher today but will have difficult time surpassing the levels reached in after hrs trading. But surely the bottom is in for this one. Going higher in the coming weeks.

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