Lawson Turnaround Fails To Impress (LWSN)

By Dean Lundell | October 12, 2007 AAA

Last Friday, Lawson Software (Nasdaq:LWSN) was treated to a first hand glimpse of an old Wall Street axiom - buy on anticipation and sell on realization.

On October 5, Lawson reported a profit versus a loss one year earlier, indicating it had finally managed to turn things around. The stock promptly sold off, closing at $9.64 after closing at $10.31 the previous day. It hardly seems a fair reward for a year of hard work, does it?

The Turnaround
Lawson Software falls under that broad category of "enterprise software". The firm provides solutions to a variety of industries and companies representing 4,000 customers in 40 countries. Headquartered in St. Paul, Minnesota, Lawson's products help its customers streamline operations, help with customer management and can even offer applications tailored specifically for a particular industry.

It has to be exasperating for Lawson's executives and employees to turn around a company's performance and earnings and then watch as Wall Street tanks the stock. After all, the consensus expectation was 5 cents per share and revenue of $186 million versus a loss of 8 cents per share a year earlier. Results were 3 cents per share on net income of $5.6 million, but after excluding certain items, it was 7 cents per share on revenue of $187.4 million. This is an increase of almost 16% compared against the same quarter the previous year.

Between what the company receives and what it has to pay outside the United States, the effects of currency fluctuations amounted to less a penny per share. (For related reading, check out Getting The Real Earnings.)

Lawson Adding Staff
Lawson's management indicated that although 229 deals were signed year-over-year versus 228 last year, the average price dropped by about 21% to $89,000. Also, the 27 new customer deals that were signed averaged $308,000 this year versus 34 last year at an average of $352,000.

Harry Debes, Lawson's President and CEO, said that the company's pipeline was strong. Using the firm's M3 Enterprise Management System as an example, he indicated that as of June, sales stood at $97 million compared to $10 million a year ago. Debes also made a point of saying that the company was ramping up its staffing level by approximately 15%. He also mentioned that the company's Philippines office will actually double in size from its current 450 people in research, customer support and professional services.

Lawson's goals for the second quarter are to produce revenue in the range of $200 to $205 million and to produce EPS of between 2 cents to 4 cents per share. For the full year, the firm's goal is to see revenue of $820 to $830 million and 30 cents to 34 cents per share.

At quarter-end, the company had roughly $483 million in cash and equivalents compared to about $554 million a year ago. During the first quarter, Lawson repurchased 5.8 million of its shares for a total of $53.7 million.

Bottom Line
Market gyrations aside, this is a company that makes other businesses more competitive. If the firm's management can keep generating successful quarters for the company, eventually the market will take note.

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