Updated from April 23

Wall Street is rewarding

Veritas

(VRTS) - Get Report

for its strong first-quarter results, with several firms upgrading the stock and shares gaining $1.29, or 6.4%, to $21.57 in recent trading on Thursday.

Upgrading Veritas were Wachovia, which upgraded Veritas to outperform from market perform, and Legg Mason, which raised the rating to buy from hold. Neither company has a banking relationship with Veritas. Analyst Sabrina Ricci of Deutsche Bank called the company's performance "impressive" but maintained her hold rating on the stock, saying she believes the shares are fully valued, trading at 33 times her current 2002 P/E estimates.

Veritas, which sells software to manage and protect various data storage functions, reported after the close on Wednesday that first-quarter revenue increased 6.5% year over year, while income was a penny lower than in the year-ago period. Both earnings and revenue exceed Street expectations.

The Mountain View, Calif., company reported that earnings in the March quarter were $43 million, or 10 cents a share, compared to $44 million, or 11 cents per share, a year ago, according to generally accepted accounting principles. Pro forma earnings were 17 cents a share.

Revenue was $394 million, well above company guidance of $370 million and the year-ago figure of $370 million. Analysts polled by Thomson Financial/First Call had expected pro forma earnings of 14 cents a share on revenue of $373 million.

License revenue, a significant indicator for a software company, was down 2% year over year, from $259.7 million to $254.6 million. But service revenue was up an impressive 26%, from $110.7 million to $139.8 million.

Veritas, one of the 10 largest software companies in the world, now has cash and short-term investments worth a record $2.39 billion, the company said.

Looking forward, Veritas expects revenue in the June quarter to range from $370 million to $380 million. GAAP earnings will range from 9 cents to 10 cents a share, with pro forma earnings of 13 cents or 14 cents. Wall Street was expecting a slightly better forecast -- EPS of 14 cents a share on revenue of $381.8 million.

During a call with analysts after the announcement, CEO Gary Bloom was fairly upbeat, despite the rather conservative second quarter forecast "The pipeline is healthy, and week by week (business) is looking better."

In an interview, Bloom said that products based on the Jareva Software acquisition will ship this quarter, and new products that were launched in the first quarter should begin to ramp and contribute more to revenue in the second and third quarters "We're spending 17% to 19% of revenue on engineering, and have robust new products in the pipeline."

Some analysts estimate that revenue derived from customers who run Veritas products on a Sun Microsystems platform is as high as 40% of the company's total. Bloom downplayed the affect of Sun's well-documented problems on Veritas, saying that "there's less there than meets the eye."

That's because nearly all of Veritas' Sun-related revenue is earned from existing Sun customers. Just 10% of all Veritas sales are directly related to new servers, and Sun's percentage of those sales is a fraction of that 10%, Bloom said.