CA Inc. (CA) Up 2.9% Since Earnings Report: Can It Continue?

A month has gone by since the last earnings report for CA Inc. CA. Shares have added about 2.9% 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. Beats on Q2 Earnings & Revenues

CA reported better-than-expected second-quarter fiscal 2017 results. The company posted adjusted earnings (including stock-based compensation but excluding other one-time items) of $0.63, which came ahead of the Zacks Consensus Estimate of $0.57.

On a GAAP basis, earnings came in at $0.50 compared with $0.39 reported in the year-ago quarter.

Quarter Details

CA reported revenues of $1.018 billion, which not only increased 1.3% from the year-ago quarter but also surpassed the Zacks Consensus Estimate of $1.006 billion. The year-over-year increase was primarily due to a 32.2% increase in Software fees and other revenues (12% of total revenue). However, Subscription and maintenance revenues (81% of total revenue) and Professional Services revenues (7%) decreased 0.9% and 9.6%, respectively.

Moreover, on a segment basis, revenues from CA’s Mainframe Solutions were down a marginal 0.7% year over year to $550 million. Revenues from Enterprise Solutions increased 6.8% on a year-over-year basis to $393 million, whereas Services revenues decreased 9.6% year over year to $75 million.

North America revenues increased 2% on a year-over-year basis, whereas International revenues were flat in terms of local currency. The company witnessed a 47% decrease in total bookings. According to the press release, bookings were down, “primarily due to a renewal with a large system integrator in excess of $500 million that occurred during the second quarter of fiscal 2016 and, to a lesser extent, a decrease in mainframe renewals.”

Moving on, CA reported adjusted income from continuing operations before interest and income taxes (including stock-based compensation but excluding other one-time items) of $385 million, up 15.3% year over year. Non-GAAP operating income from continuing operations before interest and income taxes came in at $410 million compared with $357 million reported in the year-ago quarter. The increase was due to better efficiencies and executions and the impact of the acquisition-related expenses in the year-ago period.

As a percentage of revenues, adjusted income from continuing operations before interest and income taxes was up 459 basis points (bps) to 37.8%, primarily due to lower operating expenses. Adjusted operating expenses decreased 5.5% year over year to $494 million, while as a percentage of revenues, it decreased 351 bps year over year to 48.5%.

CA’s adjusted net income from continuing operations (excluding amortization and other gains but including stock-based compensation) was approximately $261.8 million. On a GAAP basis, net income from continuing operations came in at $212 million.

CA exited the quarter with cash and cash equivalents of $2.585 billion compared with $2.776 billion in the previous quarter. The company’s total long-term debt (including current portion) came in at $1.950 billion. During the quarter, the company used $58 million in cash from operating activities.

In the second quarter, CA repurchased 1.5 million shares worth $50 million. Management approved a $650 million stock repurchase program as of Sep 30, 2016. The company also paid $107 million as dividends to its shareholders during the quarter.

Fiscal 2017 Guidance

CA reiterated its fiscal 2017 guidance. The company continues to expect total revenue to be flat to up 1%, which translates to $4.03 billion to $4.07 billion.

CA expects non-GAAP earnings per share from continuing operations to increase in the range of 2. According to the company, “At September 30, 2016 exchange rates, this translates to reported non-GAAP diluted earnings per share from continuing operations of $2.49 to $2.54.”

The company continues to expect non-GAAP operating margin to be approximately of 38%, whereas, non-GAAP effective tax rate is expected to be in the range of 28% to 29%.

The company however updated its guidance for outlook for cash flow from continuing operations. The company now expects cash flow from operations to be in the range of -3% to +1% (previously in a range of 1%–5%). Considering the exchange rates as of Sep 30, 2016, this translates to a range of $1.01 billion to $1.05 billion.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last one month period 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 Inc.'s stock has a subpar Growth Score of 'D', though it is doing a bit better on the momentum front with a 'C'. However, the stock was allocated a grade of 'B' on the value side, putting it in the top 40% for this investment strategy.

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

The company's stock is more suitable for value than momentum based on our styles scores.

Outlook

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

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