BMC Bmc Software, Inc.

BMC Inc. (BMC) is scheduled to announce its first quarter 2012 results on July 27, 2011.

We do not see too much variation in analysts’ estimates at this point.

Fourth Quarter Overview

For its fourth quarter, the company reported earnings per share of 64 cents, which missed the Zacks Consensus Estimate of 66 cents.

Reported revenue of $562.0 million increased 14.0% year over year. The company is witnessing a significant shift in customer preference as major players in the IT industry are adopting cloud computing solutions, SaaS or virtualization in order to upgrade their existing infrastructure. With a clear focus on these identifiable areas, the company drove significant sales in the quarter.

BMC’s growth strategy seems to have been accretive as suggested by improved bookings. The company witnessed significant upside in customer demand for service automation, SaaS and cloud solutions.

Operating income was $141.8 million, up 22.8% from $115.5 million reported in the year-ago quarter. Excluding special items like severance cost and amortization of intangible assets, but including stock-based compensation expense, non-GAAP operating income was $166.8 million in the reported quarter, up 21.8% year over year from $136.9 million.

For fiscal 2012, BMC expects non-GAAP diluted earnings per share in the range of $3.21 to $3.31, reflecting a year-over-year increase of 9% at the midpoint. BMC expects fiscal 2012 cash flow from operations of between $825 million and $875 million, reflecting an improvement of 11% at the midpoint.

Agreement of Analysts

Out of the six analysts providing estimates for the first quarter, none have revised their estimates over the last thirty days. Similarly, there were no upward or downward estimate revisions for fiscal year 2012.

The static estimates also indicate the absence of any major catalysts during the last thirty days. Consequently, analysts are maintaining their outlook for the upcoming quarter. 

Some analysts expect a pick up to arise from increased systems management spending as enterprises look to increase efficiency and IT flexibility through private as well as public clouds. They believe that BMC will gain market share and witness strong growth in its Cloud Lifecycle Management offering, which accounted for 10% of ESM license bookings in 2011. Lastly, BMC expects a nearly 20% gain in productive sales headcount in fiscal 2012 and a decrease in attrition.

Moreover, analysts also believe that BMC’s cloud partnerships with Cisco (CSCO), Accenture (ACN), and Salesforce.com (CRM) will remain strong going forward, and the company is ramping up indirect distribution. Although the partnership with Cisco Unified Computing System (UCS) has been below expectations, Cisco as well as Accenture contributed to a number of wins for the company last year given the focus on cloud implementations. Management is working to increase its leverage of the indirect channel.

Magnitude of Estimate Revisions

The magnitude of revisions is also minimal since the company reported its fourth quarter results. Overall, estimates for the upcoming quarter have gone down from 60 cents to 57 cents (current) over the last 90 days, while the Zacks Consensus Estimate remained unchanged over the past 30 days.

For fiscal 2012, estimates have gone down from $2.80 to $2.78 (current) in the last 90 days. There has been no revision in estimates over the past 30 days. For 2013, estimates have gone down from $3.11 to $3.09 (current) in the last 90 days, with no change over the last 30 days.

Recommendation

BMC reported decent fourth quarter results. Moreover, the company provided a positive outlook for fiscal 2012. Acquisitions have expanded BMC’s product portfolio and facilitated a more comprehensive offering. Growth prospects across most of its business segments, position in the government vertical and strong cash generation abilities are other positives.

However, we are a bit apprehensive about growing competition from big players such as International Business Machines Inc., Hewlett-Packard Company, EMC Corp. and CA Inc., which bundle hardware and software offerings. The debt level also appears high.

BMC currently holds a Zacks #3 Rank, which implies a short-term Hold rating.

 
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