Shares of CA Inc. (CA) reached a new 52-week high of $27.58 on Friday, May 3, 2013 following the acquisition of Layer 7 technologies (Apr 2013).
The closing price of the memory-chip maker on May 3 was $27.73, above its previous 52-week high of $27.58. This marked a decent one-year return of about 15.1% and robust year-to-date return of about 23.2%. Average volume of shares traded over the last 30 days was 3.3 million.
CA delivered positive earnings surprises in the last four quarters with an average beat of 6.9%. This Zacks Rank #3 (Hold) company has a market cap of $12.7 billion and long-term expected earnings growth rate of 10.0%.
3Q13 Earnings Summary
CA Inc.(CA) reported third-quarter 2013 adjusted earnings per share (EPS) of 61 cents, ahead of the Zacks Consensus Estimate of 57 cents. Better cost management and decent Enterprise Business resulted in earnings growth.
CA generated cash flow from continuing operations of $566 million, up 43% on a reported basis. The improvement in cash flow can be attributed to a $178.0 million increase in cash collections, including a single installment payment of $150 million.
Management is positive about the increase in business volume. CA expects growth in non-GAAP earnings per share from continuing operations in the range of 6.0%–10.0%, amounting to $2.36 to $2.44 per share.
Layer 7 Acquistion
The acquisition of the API management company, Layer 7 technologies had positive impact on the business of the company. This has been the second big acquisition in the API management space for CA. This acquisition, would help the company securely enable strategic cloud environment, and would also accelerate service delivery which would in turn increase profitability by generating more revenue from the existing technology assets.
Recovery in Mainframe Business and Margin
CA is expected to benefit from the recovery in the Mainframe segment in fiscal year 2014. Over the years, the growth in the Mainframe market has had a significant impact on CA’s results. Moreover, during the Mainframe renewal process, the company upgrades the customer to a higher value product, thereby generating additional revenue for itself. Moreover, operating margin for the Enterprise Solutions business is expected to be in the range of 20%-plus in the coming year, relative to 8%-12% margins the business segment has produced over the past two-plus years. Moreover, the company is also taking cost reduction measures in the Enterprise Solutions.
We also expect growth in the Enterprise and Mainframe business of the company in the upcoming quarters.
Furthermore, CA has a history of reporting above expectations, with the last four quarters generating an average surprise of 6.87%. Although we do not predict any surprise in the upcoming quarter.
Other Stocks to Consider
Other stocks in the technology industry that are currently performing well and have solid visibility include Aspen Tech Inc. (AZPN - Snapshot Report), Netquin Mobile and Progress Software (PRGS - Snapshot Report) with a Zacks Rank # 1 (Strong Buy).