Business Software Rebound: Not So Fast

Since Oct. 7, PeopleSoft has climbed more than 74%, while Siebel has moved up 57%, Bellini noted. Based on Thursday's close, PeopleSoft was trading at about 35 times 2003 earnings estimates, while Siebel was trading at nearly 38 times 2003 earnings estimates.

Despite that relatively high multiple for Siebel, another analyst, Richard Davis of Needham & Co., initiated coverage on Siebel on Friday with a buy rating, saying its stock price had finally become reasonably valued for the first time in the past half-decade.

"We generally do not like to recommend software stocks that trade significantly above 20x forward earnings unless we can either convincingly make the case that earnings are cyclically depressed or the firm is such a dominant entity in its segment that it deserves special valuation treatment," Davis wrote in his note. He believes both situations apply to Siebel. Needham has not done any banking business with Siebel.

Davis projected Siebel revenue should grow from 11% to 16% through 2005, while earnings per share should grow faster. He concluded investors should not pay much more than $8.88 per share for Siebel.

Shares of Siebel declined 10 cents, or 1.2%, to $8.57 in recent trading. Shares of PeopleSoft shed $1.09, or 5.2%, to $19.94.