BEA Systems, Inc.
(NDAQ:BEAS) are trading up $0.54, or 4.27%, since news broke late
Friday that billionaire financier Carl Icahn purchased an 8.53% stake
in the company. The famous shareholder activist believes that a sale of
the company is the best way to unlock value for shareholders, according
to a
Schedule 13D filing with the SEC.
"[We]
believe that a strategic acquirer could utilize greater resources and
market presence than the [company] to advantage the [company's]
innovative technology and thereby profit from higher revenue growth and
the elimination of duplicative costs," said Icahn. "[We] believe
consolidation in the technology industry is leading to increased
competition that may place independent software vendors at a
competitive disadvantage."
Some people are questioning this move
given the fact that BEAS hasn't fared all that bad. The company
continues to see acceptable top and bottom line growth along with an
average earnings surprise of 7.8%, which means it is beating analyst
expectations in many cases. However, a look below the surface gives
investors hints as to the real problems with the company.
BEAS currently
trades at 33.81x earnings, which is somewhat overvalued given the
industry and its historical EPS growth rates. This is particularly a
problem given the fact that the company's strong recent revenue growth
resulted in a low EPS growth rate, which suggested that competition may
be on the rise. A problem like this can be solved in the short-term
with cost cutting, but will definitely cut into profitability and cash
flows in the future.
"In light of these beliefs, [we] believe
that a sale of the [company] to a strategic acquirer will maximize the
price of the shares," continued Icahn. "[We] intend to seek to meet
with management of the [company] to discuss the potential for such a
transaction, as well as the [company's] business and operations
generally."
In the end, BEAS is certainly facing a problem when
it comes to its valuation and future prospects. Whether or not Icahn
will successfully force a sale of the company remains to be seen, but
BEAS is definitely a
stock to watch!
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