Compuware Corporation (CPWR): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

Summary:
Compuware reported mixed third-quarter results with earnings beating the Zacks Consensus Estimate while revenues missing the same. Management also slashed its revenue guidance primarily due to sluggish IT spending and challenges in Europe. We believe the ongoing restructuring plan will benefit the company's profitability, going forward. Moreover, the divestitures will help the company to focus on core business over the long run. Additionally, we believe Compuware's innovative product pipeline, initiatives to reduce costs and new program wins will boost profitability. However, overdependence on IBM for technology may rationalize growth prospects to a certain extent. Furthermore, the intensely competitive landscape compels us to downgrade our recommendation from Outperform to Neutral and set a price target of $11.00.

Overview:

Founded in 1973 and headquartered in Detroit, Mich., Compuware Corp CPWR provides software solutions and services that help in managing distributed web-based applications and mainframe systems. The company delivers its software solutions both on-premise as well as through a software-as-a-service (SaaS) model. It also provides professional technical services related to mobile application development, performance engineering and legacy system modernization.

Compuware reported revenues of $944.5 million in fiscal 2013. The company's Software solutions contributed 76.1% of revenues in 2013. Software solutions comprise the following business segments: Application Performance Management (APM), Mainframe, Changepoint and Uniface. Segment details are as follows:

The APM segment is involved in maximizing the efficiency of web, non-web, mobile, streaming and cloud application related services.

Mainframe solutions are especially designed for organizations, which require high developer productivity, and enhanced service quality at lower costs.

Changepoint is mainly engaged in providing Professional Services Automation PSA and Project Portfolio Management (PPM) services.

Uniface is considered a rapid application development platform, which creates, renews and integrates most difficult enterprise applications. It also assists IT organizations to lower their cost of ownership required for business-critical applications and subsequently improve return on investment.

The Professional services segment has been restructured considerably over the last few years to turn it into a profitable business unit. The segment contributed 14.3% of revenues in 2013. Covisint Application Services is a software-as-a-service platform that enables industries and business communities to securely integrate vital information and processes across users, business partners, customers, vendors and suppliers. The segment contributed 9.6% of revenues in 2013.

In Jan 2014, Compuware agreed to divest Changepoint, Professional Services and Uniface business units for $112.0 million in cash to M4 Global Solutions Holding B.V.

Compuware faces significant competition in most of its operating segments from the likes of International Business Machines Corp, BMC Software, CA Inc., Hewlett-Packard, Accenture and Computer Sciences Corp.

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