As Computer Associates International Inc is predicting superb fourth-quarter earnings, it seems that the failed tender offer for Computer Sciences Corp may have done more good than harm. CA said it expects earnings of $0.75 per share, excluding a $34m CSC-related charge – when the Wall Street consensus was $0.71 (CI No 3,395). Analyst Charles Phillips at Morgan Stanley & Co spoke to CA management and was told they believe that the CSC fiasco actually helped them close some deals in the quarter because customers are now convinced CA is serious about consulting and services. Many customers didn’t even realize CA provided consulting services despite the fact that it now has 600 consultants on the payroll. So, says Phillips, if there’s a positive to the failed bid, its that CA generated some free advertising [well not exactly free if you consider the $34m CA spent trying to get CSC] for its consulting operations which will help with recruiting as well. Phillips also figures investors will be happier knowing that CA’s current plans for smaller acquisitions will result in less dilution than the CSC deal would have effected. He points out that the current alignment of the services division under a single director should lend itself more easily to acquisitions. Morgan Stanley is sticking with its $2.44 estimate for FY99 and has established an estimate for FY00 of $2.83 per share. It’s also raising its price target from $63 to $69. It looks for 15% top line growth in each fiscal year with operating margins in the 43% range and product revenue growth of 18%.
