Hold Lawson Ahead of Earnings

An update has just come out today on Lawson Software, Inc. (LWSN), in which Zacks information technology analyst Abdul Saleh is restating his Hold rating on the company.  We excerpted the following details:

'The company guided Q2:FY2008 revenue and EPS in ranges of $200 - $205 million and $0.06 to $0.08, respectively. We adjusted our FY2008 estimates accordingly. We maintain our Hold rating ahead of the second quarter results expected on January 8, 2008.

'Upbeat Q1 results pointedo an improved overall execution on nearly all fronts at Lawson. Although the company generated negative free cash flow in Q1, we expect Lawson to generate pro-forma free cash flow of nearly $100 million overall for FY2008. Several other key metrics for the quarter were: DSO improved sequentially to 65 days from 69 in the prior quarter; deferred license balance stayed flat at $35.3 million, up from $20.5 million in the prior year; signed 27 new customers versus 40 in the prior quarter; signed six deals over $1 million compared to two last quarter and four in the same period last year; now have 400 offshore resources versus 333 in the prior quarter.

'However, a few factors that may be an impediment to this growth trend may include: increased competition from larger ERP vendors, unforeseen merger integration issues with Intentia and technological disruptions. Lawson's shares currently trade at 29.3 times our 2008 EPS estimate. Given the consolidation in the industry, we worry that, as Lawson's major competitors increase in size, they are becoming more formidable.

'Nevertheless, based on guidance, we have adjusted our revenue and EPS estimates for Q2 and FY2008. Consequently, we rate the company a Hold and have set our target price at $11, which is 31.4 times our 2008 EPS estimate, which is higher than the industry's median multiple.'

Tweaks to DASTY Ests

After lowering the revenue and earning estimates significantly of computer software company Dassault Systemes (DASTY), Zacks senior information technology analyst Robert J. Perri, CFA reiterates his Hold rating on the ADSs.  The following excerpts are from his report:

'Dassault Systemes continues to forge strategic alliances and partnerships to stay ahead of competition. It reported a weaker than expected third quarter of 2007 primarily due to a currency headwind which drove down margins. The company also noticed a decline in its CATIA seat growth and pricing per seat, which hindered margins further. We lowered our revenue and earnings estimates due to the slower growth outlook and also because of our new currency expectations of the USD to be worth $1.40 per 1.00 euro in 2008, from our previous $1.35 estimate.

'Dassault is a proven leader in its field and garners a high price-to-earnings multiple. At 27.8x our 2007 earnings estimate or 24.7x our newly-lowered 2008 estimate, the company is priced around 2.8x to 2.5x its long-term growth rate. We use the US GAAP as opposed to non-GAAP earnings, as we believe that stock-based compensation is a part of business and should be included in the company's financial results now that 2006 has been concluded and we will have a reasonable comparison for 2007 and 2008.

'We also believe that since the company has taken on acquisitions as a normal part of business, amortization of these intangibles becomes a cost of business deals as well. We continue to rate the shares of Dassault Systemes a Hold, and have tweaked our price target to $58 over the next six months, as we continue to believe the company should sell for 25x our new 2008 earnings estimate of $2.32 per share, which we lowered significantly after its third quarter results.'

Buy Varian Semiconductor

Reiterating his bullish case for Varian Semiconductor Equipment Associates, Inc. (VSEA), Zacks senior semiconductor analyst Ken Nagy, CFA explains why the future looks bright for the electronic machinery manufacturer and investors should add the name to their portfolio:

'Varian Semiconductor Equipment Associates, Inc. engages in the design and manufacture of semiconductor processing equipment used in the fabrication of integrated circuits. September top- and bottom-line results were in line with consensus estimates.

'The company has superior technology and remains several product generations ahead of competitors. VSEA presently trades at a multiple of 15.2x our estimate of 2008 earnings (P/E) (pro-forma adjusted for Stock option comp). As the process of transition of Nodes to 90 nanometers and below continues, VSEA remains the strongest solution for ion implementation. While the concentration to the memory sector bears watching, we feel VSEA will continue to outgrow the broader industry by continuing to increase its market share.

'VSEA recorded net income of $43.4 million, or $0.55 per diluted share during the fourth quarter of fiscal 2007, compared to net income of $23.4 million or $0.29 per diluted share in the last quarter and $32.9 million, or $0.39 per diluted share for the same period a year ago. Management delivered guidance for the first quarter of 2008. VSEA expects revenue to be between $250 and $260 million. Earnings per share are anticipated to range from $0.53 to $0.58 per diluted share. Consequently, we reiterate our Buy rating of the shares of VSEA and set a price target of $45, with a corresponding 17.7x P/E.'


LIOX Warrants Caution

An update has been released recently on Lionbridge Technologies (LIOX), in which senior software solutions analyst Robert J. Perri, CFA is restating his Hold rating on the company with a minor change in the target price. We excerpted the following details:

'Lionbridge reported weaker than expected third quarter results primarily due to delays from a few large technology customers. The weak dollar also wreaked havoc during the quarter as G&A expenses were higher by an additional $1 million. The company has embarked on a cost-cutting initiative by closing down high-cost facilities and has formulated a strategy to try and counter currency fluctuations going forward, although we are unsure of its impact.

'Additionally, the company has lowered guidance for the fourth quarter as well as for 2008, which has led us to lower our estimates for 4Q07 and FY08. Our target price is now $3.75. Based on results of the third quarter, we have lowered our revenue and earnings expectations for LionBridge for the remainder of 2007 and for entire 2008, as we are concerned about the company's growth prospects going forward. The weak US dollar continues to hurt the company although its new CFO is determined to fight this by hedging activities as well as reducing its costs of operation in Europe, which we view as a retroactive, instead of being a proactive strategy.

'This is the second quarter of declining revenue and profitability guidance from the company and its cash per share is currently at $0.51. We are also concerned about the fact that the company's board of directors authorized a $12 million share buy-back program, which should help maintain the company's stock price over the next several months. While the buy-back is good for the stock in the near-term we are concerned that the company is willing to spend slightly less than half its cash on its own stock instead of concentrating on reinvesting the cash to build its business.

'We believe there is not much downside to the stock after it has steadily sunk to the current level from May 2007, although we remain cautious about its growth prospects going forward.