As Commerce One Cools Off, Some Grumble About Target Price Mania

Net newcomer David Garrity's call is the talk of Wall Street.
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SAN FRANCISCO -- Gas prices, car sales and the automotive industry. It might not sound like the combination that creates an electronic commerce guru, but it seems to be enough for David Garrity, the

Dresdner Kleinwort Benson

analyst best known for his 1,000 price target on

Commerce One

(CMRC)

. And some other e-commerce analysts are finding Garrity's sudden rise from obscurity tough to swallow.

On Dec. 20, Garrity slapped a tire-screeching 1,000 price target on Commerce One, the company that has become to B2B e-commerce what

Amazon.com

(AMZN) - Get Report

has been to online retailing. Garrity is a relative newcomer to Net stock analysis; for the past 11 years, he has been following the auto industry.

That seemed to matter little. Commerce One, which was trading at 405 before Garrity's call, took only five trading days to reach an intraday high of 993 (or 331 following a 3-for-1 stock split Monday). The stock closed at 209 15/16 Wednesday, down 16% on the day as millions of shares came out of

lockup, the 180-day period following Commerce One's IPO when insiders can't sell shares.

But as the stock cools off, some on Wall Street are questioning how an analyst virtually unknown outside the auto industry had the juice to push a company's market cap up more than $10 billion in just six trading days. Their skepticism centers on Garrity's analysis of the stock, which uses three

models to justify his lofty target.

"They're just jealous, honey, that they didn't have the balls to do it." -- Analyst David Garrity on the reaction to his 1,000 price target.

Based on a projected 10% share of the B2B market, a future price-to-sales ratio equal to that of

America Online

(AOL)

, and future cash flow, Commerce One should be trading between 1,843 and 1,975 a share, Garrity reckons. But because he realizes there's a lot of risk involved here, Garrity scaled his target down to 1,000. (Dresdner Kleinwort hasn't done any underwriting for Commerce One.)

"While success for any firm in this sector is far from guaranteed, we believe CMRC's story is so compelling," wrote Garrity in his report, "we highly recommend that investors jump aboard this train." And they have.

"That's great analysis," one fund manager who asked not to be identified says with sarcasm. "Now he'll get his picture in

Time

magazine, like

Merrill Lynch

Internet analyst Henry Blodget." In October 1999,

Time

named Blodget one of the 50 most important people shaping technology, ranking him No. 33. (Later,

New York Magazine

named Blodget, alongside

Judge Judy

and

Latrell Sprewell

, as one of 50 New Yorkers "who are inventing the world we'll be living in next millennium.")

Blodget slapped a 400 price target on Amazon.com last December, causing the stock to leap. Like Garrity's controversial price target, Blodget's spurred a frenzy in e-commerce shares as well as grumbles from other analysts that the target was self-fulfilling and void of fundamental analysis.

Garrity isn't fazed. "They're just jealous, honey, that they didn't have the balls to do it," says Garrity, referring to other analysts who cover Commerce One.

Garrity says he's more than qualified to make these calls because he's been covering the auto industry, and

General Motors

(GM) - Get Report

has a deal with Commerce One, the financial terms of which haven't been disclosed. "This has very little to do with auto manufacturing," he says. "GM is moving to B2B and improving its business model." Garrity rates GM a buy with a price target of 86. GM, which closed unchanged Wednesday at 72 9/16, also holds 4.8 million Commerce One warrants, giving it a potential 20% stake in the Internet star.

At 1,000 a share, Commerce One would have a $24 billion market cap, or just over half of GM's current market cap of $46 billion.

As Commerce One continues to build industry portals around other behemoths like

British Telecom

(BTY)

and

Nippon Telegraph & Telephone

(NTT)

, the company is sure to be a success, Garrity says. "It's a win-win proposition," he says. "For GM, and all its related suppliers and dealers, getting together to buy and sell, if B2B unfolds at speeds I expect it will, it will be an enhancement in productivity."

But GM isn't the only car company starting to make these transitions. And Commerce One isn't the only company making and providing e-commerce software and services.

Ford

(F) - Get Report

has aligned with

Oracle

(ORCL) - Get Report

to move its business to the Net. So why no kudos for Oracle?

Garrity isn't as convinced that Oracle can deliver. Oracle is "a vaporware vendor," he says. "That man

CEO Larry Ellison sure knows how to put out a press release. But seeing is believing. And with Oracle, it's show me the money."

And with Commerce One, and price targets, it's who can be the most gutsy.