Five years ago, enterprise-software maker J.D. Edwards ( JDEC) celebrated an impressive IPO, its shares skyrocketing 55% on their first day of trading. But one year ago, the Denver company's fortunes were much different in a tight IT spending environment, particularly in its sweet spot -- manufacturing. Ed McVaney, co-founder, CEO and chairman at the time, was busy quashing rumors that J.D. Edwards was on the selling block while steering the company through its second restructuring in as many years. Times have changed again. With IBM veteran Bob Dutkowsky at the helm of the company since the beginning of the year and new products in place, J.D. Edwards has become a turnaround story. The 25-year-old company has beaten estimates the past three quarters, as rivals such as Siebel Systems ( SEBL), Oracle ( ORCL) and SAP ( SAP) have missed numbers or have lowered outlooks. Because J.D. Edwards has fallen -- it's down 24% on the year -- it may now offer a better opportunity to investors than other software stocks. "A year ago it became obvious that if the ship was even remotely pointed in the right direction, you could see some pretty good operating-margin expansion," said Josh Freedman, an equity analyst with Berger Financial Group, which owns J.D. Edwards shares in its Growth and Small Company Growth funds. To be sure, J.D. Edwards, which reports third-quarter earnings Wednesday, still has a way to go. Third-quarter license revenue is expected to ring in at less than half of its peak in the fourth quarter of 2001, when it totaled $137.4 million and overall revenue came in at $282.7 million. For the third quarter, the company projected license revenue would be $58 million -- up 7.2% sequentially and 16% from a year ago -- and earnings would come in at 6 cents a share -- flat sequentially but a reversal from a net loss of 3 cents a share in the year-ago period. Wall Street analysts polled by First Call/Thomson Financial are expecting third-quarter earnings in line with company guidance on total revenue of $222.2 million -- virtually flat sequentially and up 6.1% from a year ago. Buying in advance of the earnings report may not be the most prudent move. Credit Suisse First Boston analyst Brent Thill noted that the company lowered guidance below Street estimates in the past two quarters. Thill, who has a buy rating on J.D. Edwards, believes there is a small chance that could reoccur. (The CSFB technology group, while working for a different company, took J.D. Edwards public.) JMP Securities analyst Pat Walravens, who has a strong buy rating on J.D. Edwards, also believes the risk is there. Current Wall Street estimates peg estimates for the seasonally strong fiscal fourth quarter, which ends in October, at 11 cents a share and revenue at $252.1 million. That represents a decline in earnings from 18 cents a share a year ago and a 4.6% year-over-year increase in revenue. Walravens' firm hasn't done any banking with J.D. Edwards.
customers who like you a lot," Freedman said. And while SAP, Oracle and PeopleSoft also are touting a suite of products, J.D. Edwards has carved out a significant niche in the middle market, which it defines as companies ranging from $200 million to $5 billion. The middle market requires more hand-holding and may not want products as complex as those for sale by the likes of SAP, analysts say. And that, of course, is more good news for J.D. Edwards.