SAN FRANCISCO -- It looks like BEA Systems (BEAS) is slowly emerging from the doghouse.
In November, the company guided analysts lower for the fiscal year ended Jan. 31, warning that the backlog of orders looked sketchy. That caution sparked a wave of analyst downgrades and estimate cuts and pushed shares of the middleware software company down nearly 50% in a day.
But BEA seems to be slowly coming back into favor, no longer seen as the dog it was just three months ago. "I bought the stock when it was in the low teens," said one fund manager who went to a company presentation a few weeks ago at an investment conference. "I think I'll hold on to it. I think it looks good."
That was probably a good call. The stock, though still nowhere near its high before the warning in November, has been steadily trekking higher. It closed on Tuesday at 17 15/16, up 5/16.
But what has changed in only three months?
Well, first, the company reported stronger-than-expected fourth-quarter earnings last week, which cheered up some investors and analysts as well as the stock. BEA said it earned 5 cents per share, 2 cents better than analysts' expectations. But more important, CEO Bill Coleman said the backlog was back in order. "Our backlog is the strongest it's ever been," he told
in a phone interview. "In the fourth quarter, backlogs sprang back with a vengeance."
As a result, he said he has guided analysts higher again for both top-line revenue and bottom-line earnings-per-share growth this fiscal year. "We're estimating a 42% growth rate now from 40% and EPS rate of 50% from 40%," he said, noting that those estimates were still conservative.
So where are these orders coming from? Partly from interest in BEA's new products, which the company started touting aggressively last week at the company's user conference.
BEA has historically had its roots in transaction processing on old mainframes and legacy systems with its Tuxedo product in companies' back rooms, but it bought
last year to make a move toward the Internet. Melding some of its own products with those of WebLogic, BEA now has new products that move horizontally to the front end of a system, say, for example, where someone initiates a transaction on the Internet. BEA's software integrates companies' back-end systems with newer Web applications. In addition, BEA has new products that use enterprise Java beans, allowing companies to build Web-enabled systems faster.
Marshall Senk, analyst at
BancBoston Robertson Stephens
, says BEA's original Tuxedo product is good, "but it is what it is, and they need something more for the future. So WebLogic is critical for them." Senk's firm has underwritten for BEA.
analyst Kimberly Knickle agrees, saying, "With this, it seems they now have all the pieces together. It's just a matter of execution now." And Knickle believes that under the leadership of Mark Bowles, BEA's vice president of enterprise integration, BEA will get back on track.
Last spring, Bowles joined BEA from
, one of BEA's competitors and a company that he helped found, to move BEA into a more mainstream market. "He's really been behind our strategy," Coleman said. "Before this, we were mainly in mainframe and legacy systems, but now we're in EAI
enterprise applications integration. We work on other systems like
If all goes according to plan, BEA looks ripe to capitalize on one of the few enterprise software areas expected to grow strongly this year and in coming years. Some researchers estimate the market for middleware will grow to a $5 billion to $6 billion market within four to five years from approximately $700 million to $800 million last year.
With the new products, Coleman said BEA can grow to more than a $1 billion company in less than three years. BEA closed the fiscal year 1999 with about $289 million in total revenue. Coleman also said BEA expects to hire 50 to 100 sales representatives this quarter, marking BEA's "most aggressive quarter" in terms of hiring.
And what better proof that BEA may be onto something than the mere fact that some pretty big-name companies have already made overtures to acquire it? Rumors circulated earlier this week after a press report suggested that
was interested in acquiring BEA.
"I think it's very flattering that people think H-P might be interested, but we have no interest in being acquired right now," Coleman said, but he did not deny that any discussions took place. "There are always high-level discussions going on that may or may not mean anything," he said, noting that in the past few months he had fielded numerous "feel-out calls."
"We'd be foolish to enter into an acquisition now when our stock is relatively low, and we're at an inflection point when our business is about to boom," he said. "Any price we would agree to would be several times what anyone would want to purchase us at now."