Software firm Compuware
Corp. (NASDAQ:CPWR) shares could see upside in the medium to long-term, helped
by its revenue potential within the application performance management (APM)
business and focus on margin expansion.
Compuware has refined its
product lineup and now has a primary focus within the application performance
management market, which has emerged as one of its fastest growth business.
The company's mainframe
franchise, at 40 percent of revenue, remains a relevant part of the model with
tools that manage, test, diagnose and resolve mainframe applications and
systems. The company's Covisint subsidiary is a hosted service that provides
secure information flow for industry-specific solutions.
"Faster than anticipated
traction with combined APM solutions and mainframe stability could put growth
closer to 7-9 percent and margins near 20 percent," Jefferies analyst Aaron
Schwartz wrote in a note to clients.
Schwartz said the company
has increased conviction in the longer term revenue potential, largely based on
the growth potential of the APM and Covisint business segments.
Within the APM segment, the
company is seeing increasing sales productivity, fewer internal distractions
and greater best-of-breed sales focus with the return to the specialist sales
model. The Covisint unit continues to record growth in multiple verticals
with recent select large deal wins.
The potential for cost
efficiencies is starting to take on a more meaningful role as the company is
more aggressively targeting margin expansion. The new business unit structure
has provided an enhanced level of business unit visibility, which is increasing
the level of accountability to reduce aggregate expenses.
"We believe aggregate opex
could be in the flattish range (vs. consensus models at a 2.4% increase) with
growth-related reinvestments offset by cost reductions," said Schwartz, who has
a "buy" rating and $10 price target on Compuware shares.
Compuware shares have
increased 17 percent since mid-January and have traded between $6.97 and $11.71
for the past one year. They are currently up 14 cents, or 1.60 percent, to
$8.88 on Nasdaq.