Wednesday, November 15, 2006

Color on news: Comverse Tech (NASDAQ:CMVT)

Couple of firms are commenting on Comverse Tech (NASDAQ:CMVT) following a curious press release issued last night saying it has identified "errors in the recognition of revenue related to certain contracts, errors in the recording of certain deferred tax accounts and the misclassification of certain expenses in earlier periods" and that additional areas under review include "the possible misuse of accounting reserves and the understatement of backlog in fiscal 2002 and prior periods".

- Deutsche Bank notes they believe that the potential additional restatement will not impact previously reported cash and cash flow. Although the company had substantially completed its investigation and had preliminary restated financial statements ready, they believe the expansion of the investigation's scope will likely extend the review beyond the end of FY06, and the NASDAQ Panel may not grant additional time and may even remove the current delisting stay.

Firm's last checks continued to indicate the business remains robust. They also note that the company is already 15 days past the end of its third quarter and it has never negatively preannounced results so late. Additionally the firm is also encouraged by the fact that a positive Zev Bregman has been quoted in the press release, especially after the commentary appeared today in the Israeli online magazine The Marker Online (, reporting rumors about a possible revenue warning and Mr. Bregman being let go.

DB would encourage investors to buy aggressively given the opportunity from share weakness off of these events, although they also note an increased risk of delisting.. Maintains Buy and $37 tgt.

- FBR is calls the press release confusing saying the company left much to be debated, as the magnitude of the revenue recognition errors and time period in question was not mentioned.

Very simply, last night's news could be the 'straw that broke the camel's back' for many of CMVT's shareholders. While investors can stomach volatility and understand the risks with the company's ongoing stock option investigation, this latest accounting revelation adds further uncertainty to the name and its potential delisting status. FBR maintains their Market Perform rating, while lowering price target from $24 to $20 to factor in a much higher risk profile.

Notablecalls: I'm going go with FBR here. Think CMVT deserves to be lower here than the $19.40 reached in after hrs trading.

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