Lehman Brothers reiterates its "Overweight" recommendation for Comverse Technology Inc. (Pink Sheets: CMVT) and $22 target price for the share even though the publication of the company's financial reports has once again been pushed off. "We believe that this delays, but does not derail, the restructuring story," says the investment bank.
Comverse plummeted 19.4% to $13.64 on Friday, after president and CEO Andre Dahan published a letter to employees after the market closed on Thursday, in which he said, among other things, that the publication of the company's long-delayed revised financial reports would again be delayed.
Lehman Brothers notes that the lack of new accounting issues suggest that the delay in publication is due to the "meticulous nature of the work required to get Comverse up to date." It also notes that Comverse Technology subsidiaries Verint Systems Inc. (Pink Sheets: VRNT) and Ulticom Inc. (Pink Sheets: ULCM) did not file 8K forms with the US Securities and Exchange Commission (SEC), suggesting that the issues are specific to Comverse Inc.
Lehman empshasizes that the issues outlined in Comverse's 8K statement do not diminish "the strategic value of Comverse's core business to any potential suitors that may be examining the business."
In his "letter to investors", Dahan wrote, "While we had an internal target to be complete without filing by the fall, the substantial extent of the work and the complexity around revenue recognition, and VSOE in particular, will probably cause us some further delay."
Dahan added, "Our recent business environment indicates slower momentum in the second quarter, in particular at Netcentrix, along with some delayed purchasing decisions in the core business. This slower momentum, along with foreign exchange headwinds related to expenses we have experienced has put pressure on our business performance." Comverse acquired Netcentrix for $164 million in 2006.
Although Dahan claimed to be "encouraged" by the company's recent restrucuturing, and he predicted that the restructured company will regain momentum, some investors and analysts were unimpressed. Following the letter, both JP Morgan Chase and Robert W. Baird downgraded Comverse to "Neutral". JP Morgan also cut its target price for the company from $22 to $14.
On the other hand, in addition to Lehman Brothers, RBC Capital Markets also reiterated its recommendation and target price for Comverse at "Outperform/speculative risk" and $23 per share, but cut its full-year 2008 forecasts. The investment house predicts that the company will report "negative organic growth" of 3% for the second quarter compared with the corresponding quarter. RBC now predicts that Comverse will report earnings per share of $0.91 on $2.05 billion revenue, down from its previous forecast of report earnings per share of $1.10 on $2.1 billion revenue
Published by Globes [online], Israel business news - www.globes-online.com - on August 17, 2008
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