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Why Is CA Up 7.8% Since the Last Earnings Report?

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More than a month has gone by since the last earnings report for CA Inc. (CA - Free Report) . Shares have added about 7.8% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

CA Inc Q1 Earnings and Revenues Beat, Updates FY18 View

CA reported encouraging first-quarter fiscal 2018 results. The company posted non-GAAP earnings of $0.61, beating the Zacks Consensus Estimate of $0.55. However, non-GAAP earnings compared unfavorably with the year-ago figure of  $0.64 per share.

Quarter Details

CA reported revenues of $1.025 billion not only increasing 3% on a year-over-year basis on a reported basis, but also surpassed the Zacks Consensus Estimate of $1.003 billion. On a constant currency basis, revenues were up 4% year over year. The increase can mainly be attributed to acquisition synergies and an increase in software fees.

Revenues from Subscription and maintenance (80% of total revenue) decreased 1.1% and revenues from Professional Services (7% of total revenue) decreased 2.6% year over year. However, Software fees and other revenues (13% of total revenue) surged 38.5%.

Moreover, on a segment basis, revenues from CA’s Mainframe Solutions declined 3% on a year-over-year basis to $536 million. Revenues from Enterprise Solutions increased 12% on a year-over-year basis to $414 million, while Services revenues decreased 3% year over year to $75 million.

Both North America and International revenues increased 3% and 2%, respectively, on a year-over-year basis in terms of local currency. However, the company witnessed 48% slump in total bookings. Per the press release, “Total bookings decreased due to a decline in renewal bookings.”

Moving on, CA reported non-GAAP income from continuing operations before interest and income taxes of $383 million, down 2% year over year. As a percentage of revenues, non-GAAP income from continuing operations before interest and income taxes was down 200 basis points (bps) to 37%, primarily due to higher operating expenses.

Non-GAAP operating expenses increased 6% year over year to $642 million, while as a percentage of revenues, it increased 180 bps year over year to 62.6%. The increase in operating expenses was primarily due to expenses related to Automic and Veracode acquisitions.

CA’s non-GAAP net income from continuing operations was approximately $256 million as compared with $269 million reported in the year-ago quarter.

CA exited the quarter with cash and cash equivalents of $2.771 billion compared with $2.971 billion in the previous quarter. The company’s total long-term debt (including current portion) came in at $2.788 billion. During the quarter, the company provided $298 million in cash from operating activities.

The company also paid $107 million as dividends during the quarter.

Fiscal 2018 Guidance

CA updated fiscal 2018 guidance. The company now expects total revenue to increase 4% in constant currency as well as in reported basis. This translates reported revenues to $4.12–$4.17 billion at Jun 30, 2017 exchange rates. Previously the company anticipated revenues to increase in the range of 2–3% on a reported basis and to increase in the range of 3–4% in constant currency.

CA now anticipates non-GAAP earnings per share from continuing operations to be flat to 2% in reported as well as in constant currency basis. Previously the company expected non-GAAP earnings per share to be 3–5% on reported basis and to increase in the range of 2–4% in constant currency. According to the company, “At June 30, 2017 exchange rates, this translates to reported non-GAAP diluted earnings per share of $2.42 to $2.48.”

The company now expects non-GAAP operating margin to be in the range of 36–37%, (previous guidance 36%). Non-GAAP effective tax rate is expected to be in the range of 28–29%, unchanged from the previous guidance.

The company now expects cash flow from operations to increase in the range of 1–5% on reported and flat to 4% in constant currency basis. Previously the company projected cash flow from operations to be in the range of (2%) to 2%. Considering the exchange rates as of Jun 30, 2017, this translates to the range of $1.09–$1.14 billion.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the past month as none of them issued any earnings estimate revisions.

CA Inc. Price and Consensus

 

CA Inc. Price and Consensus | CA Inc. Quote

VGM Scores

At this time, CA's stock has a nice Growth Score of B, though it is lagging a lot on the momentum front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for value and growth investors.

Outlook

The stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.




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