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CA Inc. (CA) is scheduled to announce its third quarter 2012 results on January 24, 2012 after market close, and we do not see much variation in analysts’ estimates at this point.

Second Quarter Recap

The company reported decent second quarter 2012 results, with EPS of 49 cents, surpassing the Zacks Consensus Estimate of 46 cents. Revenue of $1.20 billion increased 10.0% from $1.08 billion in the year-ago quarter.

During the quarter, strong demand for its security management solutions and significant improvement in the mainframe business were witnessed. Moreover, contribution from North America was significant.

Higher revenue and cost control measures led to a 47.3% year-over-year growth in operating income.

Fiscal 2012 Guidance

The company expects total revenue to grow 5.0% to 6.0% in constant currency versus the previous outlook of 6.0% to 8.0%, which translates into total revenue of $4.7 billion to $4.8 billion. GAAP diluted earnings per share are estimated in the range of $1.78 to $1.83.

Non-GAAP diluted earnings per share growth is projected in the range of 7.0% to 10.0% in constant currency, which translates to reported non-GAAP diluted earnings per share of $2.13 to $2.18.

Agreement of Analysts

Out of the nine analysts providing estimates for the third quarter, none revised their estimates over the last 30 days. Similarly, no revision was witnessed for fiscal 2012, although one analyst revised its estimate downward for fiscal 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 second quarter earnings. 

Some analysts believe that CA products remain critical components, which help customers to maintain their infrastructure, and customers are positive about the company’s functionality and enhancements that they had received. Management believes that Cloud/Social/Mobile/Big Data will be increasingly important for all IT providers and consumers. Analysts are of the opinion that this service management will be a core need.

Industry experts believe that CA has started to reap benefits from its acquisitions of Arcot, Nimsoft, 3Tera and now ITKO, which are incrementally adding key elements to the forward looking strategy. On the other hand, complexity remains a challenge on a number of fronts. CA’s products as well as the overall messages are complex and investors believe that this complexity might have an adverse impact on the end users.

Magnitude of Estimate Revisions

The magnitude of revision is also minimal post the company’s second quarter results. Overall, estimates for the upcoming quarter have remained constant over a period of 30 days but dipped by 3 cents over the last 90 days.

Again for fiscal 2012, estimates decreased by 3 cents to the current estimate of $2.02 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 5 cent over the last 90 days to $2.21.

Recommendation

Looking into the company’s enhanced product portfolio, growing customer base and revival in the macroeconomic scenario, we believe that the company has provided conservative guidance for the fiscal 2012. On the other hand, we are concerned about the slightly complex products being offered by the tech major, and how it may affect the end users.

Moreover intense competition in the software & cloud computing space from big players, such as IBM (IBM) and Hewlett-Packard (HPQ). In addition, its high debt balance and European exposure may pose some challenges going forward.

The company currently has a Zacks #4 Rank, implying a short-term Sell rating.

 
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