LWSN May See MSFT Competition
Lawson Software, Inc. (LWSN) is a leading provider of enterprise resource planning (ERP) software solutions and professional services to mid-market enterprises in the health care, retail, public and professional service industries. The company reported revenues of $212.9 million in Q3:FY08, missing our estimate of $218 million while non-GAAP EPS of $0.08 came in line with our expectations. We maintain our Hold rating on the shares.
Lawson operates in a highly competitive market dominated by large players such as Oracle Corporation (ORCL) and SAP (SAP) in health care; and JDA Software Group, Inc. (JDAS) SAP and others in retail. Given the consolidation in the industry, we worry that as Lawson's major competitors are increasing in size they are becoming more formidable. Moreover, Microsoft (MSFT) has entered the low end of the ERP market, and may move up-market by targeting Lawson's core segments.
Lawson's shares currently trade at 23.1 times our FY2008 EPS estimate. We have adjusted our revenue and EPS estimates for Q4 and FY2008. Consequently, we have also lowered our target price to $10.00 from $11.00, which is 29.4 times our FY2008 EPS estimate and 20.0 times our FY2009 EPS estimate.
Some Hawaiian Electric Questions
We maintain a market-neutral Hold recommendation on Hawaiian Electric Industries, Inc. (HE). Future prospects at Hawaiian Electric appear bright, given the company's stable earnings generated by its regulated electric operations, in addition to the growing contribution from banking services.
However, new plant installations and the company's growing banking operations, HE's ongoing litigation with the Hawaiian Department of Health, increasing O&M expenses, a volatile interest rate environment, and uncertainties prevailing over the sustainable strength of the Japanese economy collectively continue to weigh on the stock's valuation.
HE common stock trades at 16.1x and 14.8x, respectively, our 2008 and 2009 earnings per share estimates, or approximately in-line with its diversified energy utility industry peers. We set six-month target price of $27.50, or 16.7x and 15.4x our 2008 and 2009 EPS estimates, respectively. Price appreciation to our near-term valuation target, coupled with the $0.31 per share quarterly cash dividend, which we deem sustainable, represents annualized total return potential of 12.6%.
Nice Price for Allied Irish Banks
We are maintaining our Buy rating on Allied Irish Banks, Plc (AIB). We consider the stock attractive at its current price. In its first-quarter trading update, AIB noted overall performance was good, with EPS expected to be off 6% in the first half due to market dislocations and lower bad debt recoveries.
We are continuing our 2008 diluted EPADS estimate at $6.20, in line with guidance calling for low-single-digit growth in earnings per share, and initiating our 2009 estimate at $6.50. AIB's results should benefit from solid loan growth (up 10%), partly offset by increasing loan impairment provisions and declining net interest margins due to slow deposit growth, higher funding costs, and increased competition.
At its current price, AIB is trading at 5.5X the 2008 estimate and 5.5X the 2009 estimate, based upon consensus estimates for 2008 and 2009, respectively. AIB's growth prospects, estimated at 12% over the next few years, are above the industry's, and its dividend yield exceeds the industry median by a wide margin. Our target price of $45 represents about a 7X P/E based on our 2009 estimate of $6.50 per share.
Higher Target on Buy-Rated QCOM
We maintain a Buy rating for Qualcomm, Inc. (QCOM), the largest developer of digital wireless chipsets based on CDMA technology, as the company continues to perform well in a turbulent economic environment, primarily due to technical superiority.
