CA Xtrackers California Municipal Bonds ETF

CA Inc. (CA) is scheduled to announce its second quarter 2012 results on October 26, 2011 after market close, and we do not see much variation in analysts’ estimates at this point.

First Quarter Overview

The company reported decent first quarter 2012 results, with EPS of 52 cents surpassing the Zacks Consensus Estimate. CA earned $1.16 billion in revenues, up 9.0% from $1.07 billion reported in the year-ago quarter.

The year-over-year growth in revenue was primarily attributable to healthy demand for its service assurance, identity and access management, Nimsoft and mainframe products. About 62.0% of the company's revenue came from North America, while the remaining was derived from International operations.

Operating income in the first quarter stood at $228.0 million, up from $221.0 million in the year-ago quarter.

CA Inc. generated cash flow from continuing operations of $143.0 million compared with $122.0 million in the prior-year quarter. Cash, cash equivalents and marketable securities were $2.95 billion. The company's net cash, cash equivalents and marketable securities position was $1.64 billion while total debt outstanding was $1.307 billion.

For fiscal 2012, the company expects revenue growth in the range of 6.0% to 8.0% at constant currency. The company estimates revenues of between $4.9 billion and $5.0 billion. GAAP diluted earnings per share growth are projected in the range of 5.0% to 9.0% at constant currency, down from the previous range of 6.0% to 11.0%. GAAP earnings per share are expected to be between $1.79 and $1.86.

Non-GAAP diluted earnings per share are expected to grow in a range of 6.0% to 10.0%, implying non-GAAP diluted earnings per share in the band of $2.14 to $2.21.

Agreement of Analysts

Out of the seven analysts providing estimates for the first quarter, none revised estimates over the last 30 days. Similarly, no revision was witnessed for fiscal 2012 and 2013.

The lack of estimate revisions reflects the fact that there were no major catalysts during the quarter. Consequently, the analysts are sticking to the estimates projected post fourth quarter earnings.

Some analysts believe that CA should see growth in the 8.0% range, whereas organic growth should rise in the mid-single digits range from 1.0% in FY11, coupled with a favorable free cash flow yield of 13.0%. But the trajectory of renewals is a proxy for future growth and we believe this metric could decelerate as the renewal pipeline will likely not trough until the FY13 timeframe.

A greater conviction in seeing an inflection point in the future renewal opportunity would likely induce us to have a more constructive view on the stock.

The company is investing heavily in cloud computing and we agree that prospects in this segment are bright. However, the company faces stiff competition from major players in this space.

Magnitude of Estimate Revisions

The magnitude of revision is also minimal since the company reported its first quarter results. Overall, estimates for the upcoming quarter have remained constant over a period of 30 and 90 days.

Again for fiscal 2012, estimates decreased by a penny to the current estimate of $2.05 over the last 90 days. There has been no revision in estimates over the past 30 days. For 2013, the estimates have moved down by a cent over the last 90 days.

Recommendation

We are optimistic about the company’s positive outlook for fiscal 2012, enhanced product portfolio, growing customer base and revival in the macroeconomic scenario. This should also help the company to generate modest numbers going forward.

On the other hand, we are concerned about the intense competition in the software & cloud computing space from big players, such as International Business Machines (IBM) and Hewlett-Packard Company (HPQ). This apart, its high debt balance may pose some challenges going forward.

The company currently has a Zacks #3 Rank, implying a short-term Hold rating.

 
CA INC (CA): Free Stock Analysis Report
 
HEWLETT PACKARD (HPQ): Free Stock Analysis Report
 
INTL BUS MACH (IBM): Free Stock Analysis Report
 
Zacks Investment Research