Earnings Preview: CA Inc. (CA)

CA Inc. (CA) is scheduled to announce its first quarter and fiscal year 2011 results on July 21, 2010 after market close, and we do not see too much variation in analyst estimates at this point.

Fourth Quarter Overview

The company reported decent fourth quarter 2010 numbers, with EPS of 37 cents matching the Zacks Consensus Estimate.

CA posted revenues of $1.10 billion, up 7.0% from $1.03 billion reported in the year-ago quarter. Revenue growth was across all geographies, as well as all business segments except professional service. New license agreements totaled 21, with values greater than $10.0 million each, which are expected to bring $632.0 million in revenue over the next few months, although bookings declined 4.0% on a year-over-year basis.

CA generated operating income of $232.0 million, up 28.9%, compared to the year-ago quarter and net income of $101.0 million, up 55.4% year over year. Moreover, CA is cash rich and exited the quarter with cash and cash equivalents of $2.58 billion, while the long term debt balance (including the current portion) stood at $1.54 billion.

During the fourth quarter conference call, management projected fiscal year 2011 revenue growth in the range of 3% to 5%, translating to revenue of $4.50 billion to $4.60 billion. Earnings per share on a GAAP basis is expected to grow in the range of 5% to 11%, which translates to earnings per share of $1.56 to $1.64. On a Non-GAAP basis, earnings are expected to range between $1.87 and $1.95 per share.

Agreement of Analysts

Out of nine analysts providing estimates for the first quarter, only one has lowered estimates in the last thirty days, while there were no upward revisions. Similarly for fiscal year 2011, only one analyst has revised estimates over the last thirty days, with no movement in the opposite direction.

The limited number of changes to estimates also points to the fact that there were no major catalysts during the quarter that could drive results. Consequently, analysts are sticking to the estimates projected post fourth-quarter earnings.

Some analysts believe that as per their findings, CA had mixed results in the fourth quarter, with the possibility of fewer portfolio renewals during the first quarter, gradually improving through the rest of fiscal year 2011. Analysts also believe that a revival in demand will come from good server sales and increased IT spending, which along with the company’s expanding product portfolio, will stem the decline in renewal rates.

Cloud computing is the area where CA is investing much of its financial and human resources and we agree that prospects in this segment are bright. However, the stiff competition that CA faces should also be kept in mind. There are many big and established players in the space, which will no doubt temper growth prospects.

Magnitude of Estimate Revisions

The magnitude of revisions is also minimal since the company reported its fourth quarter results. Overall, estimates for the upcoming quarter have gone down from 6 cents to 39 cents (current) over the past 3 months, with no changes in the Zacks Consensus estimate over the past month.

For fiscal 2011, estimates have gone down from $1.84 to $1.78 (current) over the past 3 months. There has been no revision in estimates over the past month. For 2012, estimates have gone down from $2.01 to $1.92 (current) over the past 3 months, with estimates moving down by a penny over the last past month.


We are optimistic about the company’s positive outlook for fiscal year 2011, its enhanced product portfolio, growing customer base and the revival in the macroeconomic scenario. On the other hand, we are a bit concerned about the intense competition in the software & cloud computing space from big players, such as International Business Machines (IBM) and Hewlett-Packard Co. (HPQ). This apart, its high debt balance may pose some challenges going forward.

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