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Tibco Needs to Raise the Bar

NEW YORK ( TheStreet) -- On July 3, I told you that Tibco Software (TIBX) looked like a great buy. This is even though the company, which is in a heated battle with (among others) Oracle (ORCL) and IBM (IBM), was coming off a fiscal second quarter in which revenue dropped 1% year over year. In that article, I said:

"I still like Tibco's long-term prospects -- even though many others don't. Management deserves credit for the moves that they've made, many of which should create more value for shareholders over time. Accordingly, with long-term revenue growth that should outperform both IBM and Oracle, I value shares of Tibco at $25, or 15% above current value."

Today, given that shares of Tibco are trading only percentages shy of my $25 target, it's time to re-evaluate the company's prospects, especially since Tibco is due to report third-quarter earnings on Thursday.

Truth be told, when factoring in the company's earnings miss in the June quarter, there's no denying that Tibco has not had a tremendous year. But even so, I don't believe there's been a software company that has significantly outperformed to the extent investors would believe that weak enterprise spending has not had an impact on the entire sector.

To that end, my 15% upward bet on Tibco following the stock's selloff had much to do with the fact that the Street grossly overreacted. Not to mention, there was some cause for optimism that enterprise spending would begin to pick up, which it has.

I won't lie and tell you that the corporate-spending recovery has been as robust as I expected. In that regard, I can't blame those who bailed on the stock. But from my vantage point, I can see that after long periods of underperformance, Tibco, which is in the midst of some pretty significant restructuring initiatives, has proven capable of navigating this soft spending patch.

That the Street dismissed Tibco's 3% sequential revenue growth, while overly emphasizing the 1% year-over-year decline, was a perfect example.

Granted, the company still underperformed in year-over-year license revenue. But on a relative basis, we can't discount that Tibco's performance was in the same quarter that Oracle posted growth of less-than-1%, missing Oracle's own guidance.

Plus, investors ignored that not only did Tibco grow license revenue 5% sequentially, to $82 million, but the company continues to do well in maintenance revenue, which advanced at a better-than-expected rate of 6% year over year and 3% sequentially.
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