dropped Monday after Morgan Stanley lowered estimates and said the storage software maker could violate lease agreements.
Shares of Veritas closed down $2.65, or 12.07%, to $19.31. Veritas was the fourth most actively traded loser among U.S. stocks, according to Instinet.
In a note released Friday, Morgan Stanley analyst Joseph Farley lowered his estimates for fiscal years 2002 and 2003, estimating flat revenue in 2002 and 12% revenue growth in 2003. He lowered earnings estimates to 63 cents from 65 cents a share in 2002 and to 75 cents from 82 cents a share in 2003.
Farley, who maintained his overweight rating on Veritas, said he is lowering numbers because of concern that technology spending is recovering at a slower pace than earlier anticipated. "We had been expecting
improvements in software by midyear," he said. "Having reached that point on the calendar, there appears to be little evidence of any incremental improvement." His firm has done banking business with the company.
The consensus estimate calls for Veritas to earn 62 cents a share in 2002 and 79 cents a share in 2003, according to Thomson Financial/First Call. Wall Street is expecting Veritas to post a 1.3% increase in revenue in 2002 and an 18.1% increase in 2003.
If Farley's 2002 earnings estimate is realized by Veritas, the company would violate operating lease agreements for properties it occupies, he said in his note. In particular, the company would violate financial covenants requiring EBITDA of $500 million in 2002. Farley is now forecasting EBITDA will hit only $481.6 million.
"This is not a trivial matter," Farley said in his note. But given Veritas' strong balance sheet and the cash flows expected in future quarters, he said, the company could renegotiate the leases without serious penalty. He noted that Veritas previously renegotiated the EBITDA requirement down from $600 million.