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BEA Systems Posts Good Numbers, but Own Stock Still Pricey

Company guides analysts higher, but the software maker's stock trades at about 26 times next year's revenue estimate.

Updated from 2:06 a.m. ET

While

BEA Systems

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topped analysts' expectations Tuesday, the company might have a tough time living up to its own heady stock price in the months to come.

During its conference call Tuesday, the company guided analysts higher on both the earnings and revenue fronts for the rest of this fiscal year and next. But with its stock trading at roughly 26 times next fiscal year's revenue estimate, shares already look expensive compared with software stocks like

i2 Technologies

(ITWO)

, which trades at about 21 times next year's revenue estimate. The company's shares closed up almost $8 Tuesday, and continued their rise Wednesday, adding $5, or 7%, to $75.94.

"It's a great company, and at the right price, we would wholeheartedly endorse them," says Richard Williams, an analyst with

Jefferies

who rates BEA a hold. "But at such a high valuation, our view is that it's a risky time right now, it's not a layup. Every stock gets overvalued along the way. We just prefer to wait for a more attractive entry point." (His firm hasn't done underwriting for the company.)

Bill Coleman, BEA's self-assured CEO, says if investors want the kind of growth his company has to offer, they'll have to pay for it.

"If you take the standard kind of metrics that a leading software company was measured on in the '90s, and take BEA's growth rate out a couple of years, we would justify a several hundred billion dollar market capitalization," Coleman says. "That's why 18 out of 19 analysts have mostly strong buys."

BEA's market cap is $23.4 billion. Of 19 analysts following the company, 12 have strong buy ratings on the company, five rate it a buy and two give it a hold, according to

First Call/Thomson Financial

TheStreet Recommends

.

Tuesday evening, the integration software maker

said it earned 7 cents a share excluding certain items on $224 million in revenue in the third quarter ended Oct. 31. Analysts were expecting the company to earn 6 cents a share on revenue of $207.9 million, according to

First Call/Thompson Financial

.

Following the earnings release, the company said it expects an extra 2 cents a share this fiscal year, which ends in January. Analysts expected the company would earn 22 cents this fiscal year. BEA also said it sees revenue coming in at $815 million for the year, or $35 million more than expected.

For the year ending in January 2002, the company expects to earn 36 to 37 cents a share, better than the First Call consensus of 33 cents. It said revenue should be around $1.2 billion, giving it a growth rate of 46% to 48%. Analysts had expected it would bring in $1.1 billion to $1.15 billion in revenue, a growth rate of about 44%.

But with its stock up more than 80% this year, the company had to give analysts higher guidance. Otherwise, they wouldn't have enough ammo to justify the company's high-priced stock in their usually gushing reports.

"The quarter was everything I thought it would be, and the guidance was higher than what I currently have," said Mark Mulcahy, an analyst for

Pacific Growth Equities

who rates the stock a buy. "But to be fair, that's going to increase as we move along, once the company moves into a solid Q4." (His firm hasn't done underwriting for BEA.)

In other words, the better BEA does, the better it will have to do.

Williams says that the market already has priced year-over-year revenue growth of about 80% into the stock, in line with the 77% increase the company reported Tuesday. The reason the company is projecting 46% to 48% growth for fiscal 2002, he says, is because it's following the time-honored Wall Street tradition setting projections it can exceed.

But even the company's reported 77% revenue growth rate is lower than some competitors. i2 Technologies' revenue grew 118% year over year when it reported its most-recent quarterly results.

"Other similarly positioned companies that are growing faster over the last four quarters are trading at a discount to BEA Systems today," Williams says.

And with other technology stocks getting whacked left and right in the face of disappointing earnings or slowing demand, BEA, which has largely been able to avoid a more heinous drop, could be set up for a fall.

Not that there weren't plenty of positives to look at in BEA's results, like the 8,200 customers that BEA now has, or the fact that developers are downloading its software by the boatload to get up to speed with it.

And with the stock's continued rise, investors clearly see some bright spots as well.

BEA's Coleman, for his part, gave an extremely bullish outlook for his company, going so far as to compare it with

Microsoft

(MSFT) - Get Microsoft Corporation Report

"In the '80s and '90s, the applications that everyone used were built on Microsoft. Right now, what's happening is that all the applications built for e-commerce are being built on BEA. Right now,

other companies are developing applications that over the next decade will make all other forms of computing obsolete, and they're going to be built on BEA."

But with talk like that, and a rising stock price, the pressure just keeps building.