Dain Rauscher reiterates Buy for Mercury despite lower forecasts

Analyst Sara Matson lowers revenue outlook and slashes price target to $27, 21% over market price
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Two days after Mercury Interactive (Nasdaq:MERQ) issued a profit warning, Dain Rauscher Wessels reiterated a Buy rating.

But analyst Sara Matson slashed the price target to $27 from the previous $35, 21% above its market price.

Matson points out the company predicted its quarterly revenues would be around $82 million to $84 million, of which $50 million to $52 million would be revenues on software licensing deals. EPS is an estimated 10 to 12 cents.

Matson adds that updated forecasts at Dain Rauscher, published two weeks ago, were off whack.

According to those forecasts, the company was expected to take in $85 million and enjoy an EPS of 16 cents. The earlier forecasts were of revenues of $95 million and an EPS of 18 cents. Revenues on software licensing will also be lower than the earlier forecasts of $57 million.

Mercury's third quarter was affected by the relative slump in its market, as well as by the terror attacks on the U.S. The U.S. market took most of the brunt, while Mercury managed to meet its quarterly goals in Europe, she wrote.

But she notes that Mercury's transactions have shrunk, with not one deal exceeding $1 million. In the previous quarter it inked four deals worth more than $1 million.

For 2001 Matson predicts revenues of $356 million, down from $367 million.

For 2002, she foresees $359 million revenues against her previous forecast of $420 million. She expects EPS of 59 cents for 2001, climbing to 70 cents in 2002.