Zeev's Turnips Patch-No Politics (ZEEV)

[marketmaven]

Short increased in ASKJ & MSTR, Wedbush concerned last week about 7 figure license deals not closing..... Real cash flow is overstated since company is underinvesting in R&D, clients are complaining about slow delivery of additive functionality

Added to ASKJ short here- $34.50 Added to MSTR short at $38.79
Yesterday, MicroStrategy hosted a launch-event Webcast for its 7i Universal Edition, highlighting the key benefits of the product, positive customer reaction, and future directions. We provide more details concerning the maintenance-fee controversy. Contrary to popular opinion, we actually expect that fee increases will continue to boost the company's maintenance revenue stream. We believe that knee-jerk negative reaction to the issue creates a major opportunity for investors. MicroStrategy has become one of the cheapest names in our universe at less than 10x free cash flow. As a reminder, the company delivered blow-out first-quarter results, demonstrating very strong business momentum. Guidance for a normalized tax rate in 2005 eliminated an overhang issue. Although there was a 14% reduction to consensus 2005 EPS relative to prior numbers ($1.89 versus a previous consensus of $2.20), the stock is down 34% (from $65 to $43); We believe that MicroStrategy is highly likely to deliver upside to our and consensus expectations, suggesting that numbers are likely to move higher, perhaps considerably higher. MicroStrategy gives notoriously conservative guidance, has been posting the sector's strongest organic license-revenue comps, and has the most earnings leverage in the sector due to its low share count of only 16 million outstanding shares. n
The company's improved financial condition, strong new-product cycle, and highly defensible competitive position set the groundwork for what we believe will be excellent results for 2004 and 2005. We reiterate our Buy Focus List rating and our $65 price target. This would represent a 14x multiple on our 2005 FCF estimate, consistent with average FCF multiples within the BI/analytics sector. Key risk factors include increasing competition (including newer entrants such as the large application vendors) and dependency on seven-figure license transactions.