Commerce One Downgrade Hits Stock

In the first sign that its run up may be hitting a peak, an analyst downgraded Commerce One(CMRC) Tuesday to hold from accumulate.

Jefferies analyst Richard Williams cut his rating because of the stock's high valuation and his concerns over potentially slowing sales in the business-to-business sector, he wrote in a research note. (His firm hasn't done underwriting for Commerce One.)

Commerce One's stock was lately off $6.44, or 8.8%, at $66.13.

"Commerce One is up 41% in the seven weeks since we initiated coverage," Williams wrote. "We are concerned that Commerce One, like its highly valued peers i2 Technologies(ITWO), Ariba(ARBA) and Siebel Systems(SEBL) may be subject to slowing sales momentum that could hit the stocks." (Williams rates i2 and Ariba holds, and his firm hasn't done underwriting for either. He doesn't rate Siebel, and his firm hasn't done underwriting for that company.)

Williams came to his downgrade after talking to a number of companies and their customers, he said.

"I was sitting at a number of analyst days, all at the same time, and I began to ask myself, 'Is there an issue, because everyone is claiming Fortune 200 companies as their customers, is there an issue of saturation?'" Williams said. "They're also in a position where they're choking on their own success. They've got another three to six months to complete big customer projects already under way, and it's really tough to hire programmers right now."

In that sense, slower sales momentum may also come from an inability to meet demand, rather than an actual slowing of demand for B2B software.

Williams' hold rating on Commerce One stands out among his peers. According to Multex.com, there are 26 buy or strong buy ratings on the stock. Williams is the only analyst tracked by the site to rate the stock a hold.

His downgrade is reminiscent of another big B2B downgrade. On Aug. 17, when Ariba's stock was rocketing upward, Gavin Mlinar of Sands Brothers, lowered his rating on Ariba to buy from strong buy because it was nearing his price target of $150. While the stock closed as high as $166.44 just weeks after that downgrade, it has since come back to $127.06, in part thanks to a selloff Monday following its loss of a key customer. (Mlinar's firm hasn't done any underwriting for Ariba.)

In Tuesday's note, Williams said slowing business from systems integrators, the demise of dot-com companies and a lack of activity on trading exchanges could all lead to slowing sales momentum within the B2B sector.

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