Why Magic Software (MGIC) Is Falling Today

NEW YORK (TheStreet) -- Magic Software (MGIC) was falling 10.2% to $8.52 Friday after the software company announced the price of its 6 million share public offering.

Magic Software, which makes business development solutions, announced that it will price the underwritten offering of 6 million ordinary shares at $8.50 a share. Formula Systems (1985) (FORTY), the company's largest shareholder, agreed to buy 700,000 ordinary shares at the public offering price. That purchase will give the company a 45.9% stake in Magic Software.

The company plans to use the new proceeds from the public offering for general corporate purposes such as funding of its working capital needs and funding potential acquisitions.

Barclays Capital Inc. and William Blair & Company, L.L.C. are acting as joint book-running managers for the offering, while Maxim Group and H.C. Wainwright & Co. are acting as co-managers for the offering.

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TheStreet Ratings team rates MAGIC SOFTWARE ENTERPRISES as a "buy" with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate MAGIC SOFTWARE ENTERPRISES (MGIC) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels, solid stock price performance and increase in net income. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • MGIC's revenue growth has slightly outpaced the industry average of 10.8%. Since the same quarter one year prior, revenues rose by 15.3%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • MGIC's debt-to-equity ratio is very low at 0.03 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, MGIC has a quick ratio of 2.39, which demonstrates the ability of the company to cover short-term liquidity needs.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 80.84% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, MGIC should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • The net income growth from the same quarter one year ago has exceeded that of the Software industry average, but is less than that of the S&P 500. The net income increased by 10.3% when compared to the same quarter one year prior, going from $4.25 million to $4.69 million.
  • You can view the full analysis from the report here: MGIC Ratings Report

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