Mercury Interactive Soars after Beating Estimates

The provider of Web-based applications reiterated full-year guidance as well.

Author:: Ronna Abramson
Publish date:: Apr 12, 2002 1:26 PM EDT

Updated from April 11, 2002

Shares of

Mercury Interactive

(MERQ)

surged Friday, one day after the maker of software that tests and manages Web-based applications reported a strong first quarter that beat both revenue and earnings estimates.

Two analysts upgraded their ratings on the Sunnyvale, Calif., company Friday while others gushed about what they called a "stellar" quarter.

Shares of Mercury Interactive rose $6.18, or 21%, to $35.62 in recent trading.

Jolson Merchant Partners analyst Amy Feng upgraded Mercury to a strong buy from long-term buy and set a price target of $45. Raymond James & Associates analyst Jonathan Ruykhaver upgraded the stock to a buy from market perform and set a price target of $40. Both analysts raised their estimates for the full year, although on a conference call Thursday the company reiterated previous full-year guidance and provided second-quarter guidance in line with Wall Street expectations.

Ruykhaver said in a note that Mercury Interactive is well-positioned in this economic environment with companies more focused on maximizing scale and efficiencies from current infrastructure. Feng made a similar argument, noting that Mercury will benefit as companies deploy applications bought as long as three years ago. Neither analysts' firm has done banking for Mercury Interactive.

A.G. Edwards analyst Mary O'Rourke Werner was less bullish than others, maintaining her hold/aggressive rating. She said she believes the positive news is already built into shares, which were trading at 40 times her forward 12-month estimates. O'Rourke has a position in Mercury stock.

Mercury said it earned $15.2 million, or 17 cents a share, compared with $16.1 million, or 18 cents a share, in the first quarter a year ago. First-quarter revenue came in at $90.5 million, virtually flat from $90.7 million reported the same period a year earlier. Revenue also remained flat sequentially from the fourth quarter.

The company reported pro forma net income of $12.1 million, or 14 cents a share, compared with pro forma income of $16.1 million, or 18 cents a share, last year.

Wall Street was expecting the company to report pro forma earnings of 10 cents a share on revenue of $86.14 million.

On its conference call, the company said it is projecting second-quarter revenue to range from $91 million to $96 million and earnings to range from 14 cents to 16 cents a share. Wall Street forecast the firm would bring in 14 cents a share on $93 million in the second quarter, according to Thomson Financial/First Call.

The company reiterated guidance for the full year, which puts total revenue in the range of $380 million to $415 million and earnings in the range of 60 cents to 72 cents a share. The consensus estimate among Wall Street analysts calls for earnings of 66 cents a share on $398 million in revenue.

Mercury Interactive's first-quarter results bucked a trend of disappointing earnings reported by other firms focused on the enterprise software market, including

Oracle

(ORCL) - Get Report

and

PeopleSoft

(PSFT)

. On a conference call, Mercury Interactive executives said companies are continuing to implement large and complex enterprise and customer relationship management applications, but noted that some products were bought years ago.

Analysts on the conference call raised questions about the effect unrest in the Middle East is having on Mercury, whose research and development team is based in Israel. CEO Amnon Landan said only 10 of the 400 employees in Israel have been called into reserve service. "That's a non-event," he said. "Frankly, I'm not too concerned at all about the impact the situation in Israel might have on our R & D.