CA: Great Value Play

CA, Inc (CA) reported its fiscal fourth quarterly results that beat analysts estimates coming in at $.31 EPS compared to analyst estimates of $.29. The company earned a total of $1.55 in fiscal 2009 and exceeded analysts estimates each quarter. The stock is getting a nice 6% bounce at this point as the Street was nervous that the software and mainframe business had slowed to a crawl. The company did see revenue slide about 5% on a year over year basis, which is comparatively not that bad in light of most technology firms troubles right now. Clearly, keeping costs in check was a major reason for the earnings beat in the past quarter.

“Welcome back to “Squawk”, a lot of people are thinking this is a bear trap, this early look at the gainer, CA, we used to lovingly call it Computer Associates now it’s just CA. It’s up 4 1/2%. Beat by two cents on the fiscal fourth quarter. They put a long term forecast out here that’s wide. They could lose money, make wall street seems to be relieved.” Squawk On the Street 5/14/2009.

At Ockham, we have liked this stock for quite a while as you can see from our historical stock valuation chart. The reasons why are plainly obvious when you take into account the stock’s current fundamentals when compared to its 10-year history. For example, when looking at price-to-sales CA has normally traded at 2.98x to 4.8x premium to revenue per share but the current level is less than 2x. The price-to-cash flow is an even more undervalued metric: the current level is 9.5x, which is far less than the 10 year historical range of 17.7x to 27.9x. When looking back ten years, a great many stocks look undervalued, but not many look as undervalued as CA. For this reason we have placed our most bullish Greatly Undervalued valuation on CA, Inc.

Furthermore, CA has not really gotten much of a benefit out of the recent rally that many in the technology sector have in the last 10 weeks. In fact, over the last 3-months CA is actually down about 4% coming into the day. In comparison, the technology sector was up 19.4% in the last three months prior to Thursday’s trading. So, even if you missed the more than 6% pop today, we think that over the next few months there is plenty of appreciation potential in this company.

CA Represents Great Value Play

About Ockham Research 645 Articles

Ockham Research is an independent equity research provider based in Atlanta, Georgia. Security analysis at Ockham Research is based upon the principle known as Ockham's Razor, named for the 14th- century Franciscan friar, William of Ockham. The principle states that a useful theory should utilize as few elements as possible, because efficiency is valuable. In this spirit, our goal is to make the investing environment as simple and understandable as possible, yet no simpler than is necessary.

We utilize this straightforward approach to value over 5500 securities, with key emphasis given to the study of individual securities' price-to-sales, price-to-cash earnings and other historical valuation ranges. Our long term value investing methodology is powered by the teachings of Ben Graham and it has proven to be very adept at identifying stock prices that are out of line with fundamental factors.

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