It has been about a month since the last earnings report for CA Inc. CA. Shares have added about 4.5% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is CA due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
CA Surpasses Q4 Earnings Estimates, Revenues Increase Y/Y
CA fourth-quarter 2018 earnings topped the Zacks Consensus Estimate whereas revenues came in line with the same.
The company posted non-GAAP earnings of 62 cents per share, surpassing the Zacks Consensus Estimate of 60 cents. Further, reported earnings witnessed a year-over-year increase of 15%.
CA’s reported revenues of $1.083 billion increased 7% on a year-over-year basis. On a constant currency basis, revenues were up 4% year over year.
The year-over-year revenue growth was mainly attributable to Mainframe new sales, driven by the company’s ongoing innovations and robust Mainframe hardware cycle. Management was positive about the impressive performance of the company’s Mainframe Operational Intelligence and Dynamic Capacity Intelligence solutions.
With security being one of the key areas in recent times, the company witnessed a surge in demand for its recently launched Trusted Access Manager for Z, a Mainframe solution. Additionally, a similar solution in the Enterprise Solutions segment, named Privileged Access Management or PAM saw new sales growth of around 50%.
Revenues from Subscription and maintenance (77.5% of total revenues) increased 3% and revenues from Professional Services (7.5% of total revenues) were up 5% from the year-ago quarter. Software fees and other revenues (15% of total revenues) surged 32%.
Moreover, on a segment basis, revenues from CA’s Mainframe Solutions increased 3% on a year-over-year basis to $549 million. Revenues from Enterprise Solutions jumped 13% on a year-over-year basis to $453 million, while Services revenues increased 5% to reach $81 million.
North America and International revenues increased 5% and 12%, respectively, on a year-over-year basis. The company witnessed 7% increase in total bookings.
CA reported non-GAAP income before interest and income taxes of $366 million, up 15% year over year. As a percentage of revenues, non-GAAP income before interest and income taxes were up 200 basis points (bps) on a year-over-year basis to 34%.
The company’s non-GAAP net income was approximately $258 million compared with $227 million in the year-ago quarter.
CA exited the quarter with cash and cash equivalents of $3.405 billion compared with $2.971 billion in the previous quarter. The company’s total long-term debt (net of current portion) came in at $2.514 billion. During the quarter, the company generated $548 million of cash flow from operational activities.
During the quarter, the company distributed dividend worth $107 million to its shareholders. As of Mar 31, 2018, the company has approximately $487 million remaining under its current stock repurchase program.
Fiscal 2018 Snapshot
CA reported revenues of $4.235 billion, up 5% from the previous fiscal. The company reported earnings of $2.59 per share that increased 4% from fiscal 2017. Management stated that the company recorded revenue growth for the second consecutive year in fiscal 2018.
During fiscal 2018, the company repurchased around 5 million shares for approximately $163 million.
Fiscal 2019 Guidance
Notably, for fiscal 2019, the company will implement ASC 606 revenue standard but will report results under both ASC 605 and ASC 606 revenue standards. However, CA provided guidance for fiscal 2019 per ASC 605 revenue standard for ease of comparison.
The company anticipates total revenues to range between flat to up 1% on a reported basis and down 1% to flat on a constant currency basis. This translates to revenues in the range of $4.25-$4.29 billion at Mar 31, 2018 exchange rates.
The company expects non-GAAP earnings per share to increase in the range of 6% to 8% on a reported and 2% to 4% on a constant currency basis. According to the company, “At March 31, 2018 exchange rates, this translates to reported non-GAAP diluted earnings per share of $2.75 to $2.81.” The Zacks Consensus Estimate for fiscal 2019 is pegged at $2.77 per share.
The company continues to project cash flow from operations to decrease in the range of 1-5% on a reported basis and 3-7% on a constant currency basis. Considering the exchange rates as of Mar 31, 2018, this translates to cash flow in the range of $1.14-$1.18 billion.
The decline in the projected cash flow can primarily be attributed to restructuring charges, U.S. tax reform and adoption of ASC 606 revenue standard.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month. There has been one revision higher for the current quarter compared to one lower.
CA Inc. Price and Consensus
CA Inc. Price and Consensus | CA Inc. Quote
At this time, CA has a nice Growth Score of B. Its Momentum is doing a bit better with an A. The stock was also 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is more suitable for momentum investors than those looking for value and growth.
CA has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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