SAP AG (NYSE: SAP) shares trading lower today after the company posted a first-quarter profit of 242 million euros ($376.82 million), below analysts' estimates of 296 million euros ($460.9 million). The weaker US dollar has been holding SAP back. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on SAP.
After hitting a one-year high of $59.86 in October, the stock hit a one-year low of $43.00 in January. This morning, SAP opened at $49.50. So far today the stock has hit a low of $43.00 and a high of $59.86. As of 12:10, SAP is trading at $51.02, down $1.43 (-2.7%). The chart for SAP looks bullish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bearish hedged play on this stock, I would consider a June bear-call credit spread above the $55 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in seven weeks as long as SAP is below $55 at June expiration. SAP would have to rise by more than 7% before we would start to lose money. Learn more about this type of trade here.
MOST NOTEWORTHY: Goldman Sachs, Alexza Pharma and SAP AG were today's noteworthy upgrades:
Wachovia upgraded Goldman Sachs (NYSE: GS) to Outperform from Market Perform, as they believe Goldman has a superior capital position relative to competitors and will likely benefit more than any firm from Bear Stearns' (NYSE: BSC) collapse. They have a $180-$185 target range for the stock.
Following Alexza Pharma's (NASDAQ: ALXA) Q4 report, JMP Securities said they have reduced concerns regarding Loxapine timelines and risks. The firm raised Alexza to Outperform from Market Perform.
SAP AG (NYSE: SAP) was upgraded to Outperform from Market Perform at Bernstein on valuation and a positive view on fundamentals.
OTHER UPGRADES:
Tyson Foods (NYSE: TSN) was raised to Overweight from Equal Weight at Stephens.
Citigroup upgraded Teekay Shipping (NYSE: TK) and General Maritime (GMR) to Buy from Hold.
RiskMetrics (NYSE: RMG) was upgraded to Buy from Neutral at Banc of America.
Michael A Cusumano, a professor at the Sloan School of Management at the Massachusetts Institute of Technology, said in the New York Times on February 24, 2008 that Microsoft (NASDAQ: MSFT), "rather than acquire Yahoo (NASDAQ: YHOO), should pursue SAP." SAP is a German software company has more than 46,100 customers in more than 120 countries running applications from SAP.
SAP overall option implied volatility of 31 is near its 26-week average according to Track Data, suggesting non-directional risk.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Last year, VMware Inc (NYSE: VMW) was a darling for growth investors. But as of this year, things are not so stellar. The stock fell 26% in after-hours trading because of the jarring news from its quarterly report.
Revenues increased 80% to $412 million, which was below the Street's consensus forecasts of $417 million. Net income came to $78 million, or $0.19 per share
VMware -- which is 85% owned by EMC Corp. (NYSE: EMC) -- develops so-called virtualization software. Basically, the technology helps to reduce the costs of servers and other information technology (IT) resources.
To push growth, VMware has been aggressive in global markets, such as Eastern Europe, Japan, and China. There are also some marquee agreements, such as with SAP (NYSE: SAP).
While it looks like the momentum will continue for the first half of 2008, things are not so hopeful for the remainder of the year. In fact, the company projects a revenue growth rate of 50% for the full-year.
True, a slowdown is inevitable as it gets difficult for a billion-dollar company to keep churning large-size growth rates.
Although, the competitive environment is intensifying. Companies like Citrix (NASDAQ: CTXS), Microsoft (NASDAQ: MSFT), Oracle (NASDAQ: ORCL) and Virtual Iron are getting serious about virtualization. And no doubt, this is likely to put pressure on pricing.
Executives at big tech companies say that they see no recession, at least in their businesses. They seem to have at least some support for their thinking. According to the FT, "Tech executives also point to their broader diversification. While emerging markets represent 10-15 percent of the revenues of most big tech companies, they have come to account for a far larger part of their growth."
IBM (NYSE: IBM) turned in strong results. So did enterprise software company SAP (NYSE: SAP). But a quarter does not a trend make, even if forecasts for next year are good. A forecast is only as good as the next quarter.
Business in Asia is not immune from a slowdown. It may not be evident today, but there are already some signs. After tremendous increases last year, stock markets in China are not rising much now. Investors in that market are sending signals that their outlook may not be rosy.
A sharp slowdown in the US and Europe is bound to hit Asia because exports from those countries into the developed world will drop. China's economy is built to "hyper-growth" so a step down in expansion could bring financial, real estate, and economic markets there down with a crash.
Asia will grow until its doesn't. That may come sooner that many tech executives believe and would leave their growth plans in the mud.
Douglas A. McIntyre is an editor at 247wallst.com.
For investors, the hardest question often faced is when to sell a stock. Even when a stock issues a profit warning, if you are a long-term investor, that doesn't always justify one to pull the trigger.
There is no question it's easier to buy a stock than to sell. With that being said, today I was faced with an easy call. I call it the "three strikes and you are out" policy. If a company disappoints me three times in the span of six months, you're out (How long until pitchers and catchers report to spring training?).
Retalix (NASDAQ: RTLX) the Israeli provider of software solutions to retailers and distributors, today announced that it was going to miss its earnings estimates for the quarter. This is not the first time this has happened -- last quarter the same thing happened.
Over the past couple years, I've met with Zach Nelson several times. He's a veteran of the software world and is currently the CEO of NetSuite (which starts trading tomorrow as NYSE: N). The company develops on-demand software for the small-to-mid size business (SMB) segment, essentially allowing for sophisticated enterprise resource planning (ERP) functionality at affordable pricing.
Despite the success of NetSuite, it has been in the shadows of mega player, Salesforce.com (NYSE: CRM).
But this may change; that is, today NetSuite had a successful IPO, raising $161 million. At first, the company had a $13-$16 price range on the offering, but was able to price the deal at $26. NetSuite used an online Dutch auction system for its IPO, which allows any investor to participate.
The ERP market for large businesses is mostly dominated by SAP (NYSE: SAP) and Oracle (Nasdaq: ORCL). However, the SMB market is fairly under penetrated (Nelson calls it the "Fortune Five Million").
Oracle (NASDAQ: ORCL) posted much stronger than expected earnings. The company announced that fiscal 2008 Q2 GAAP earnings per share were up 36% to $0.25, compared to the same quarter last year. Second quarter total GAAP revenues were up 28% to $5.3 billion, while quarterly GAAP net income was up 35% to $1.3 billion.
The company also took a punch at rival SAP (NYSE: SAP) by pointing out that in Q2 Oracle's applications new license sales grew 63% compared to SAP's new license sales growth rate of 15% in its most recently completed quarter.
A great deal of Oracle's revenue was driven by upgrades to its software, and this is a strength that is likely to continue.
The most obvious take-away from the Oracle numbers is that there is still a great deal of strength left in enterprise technology sales. The company is big enough so that its results are a reasonable proxy for the extent to which large companies are willing to spend on tech. The news is good.
The other, less obvious lesson the Oracle's earnings bring, is that large technology companies can successfully grow through major acquisitions. Oracle has been a master at buying and integrating new companies. The only other tech company that has comparable strengths in the arena is Cisco (NASDAQ: CSCO).
In an industry where scale matters, Oracle has proved that it can build its business through both organic growth and M&A.
ORCL shares are up nearly 7% in premarket trading.
Douglas A. McIntyre is an editor at 247wallst.com.
With stock markets continuing to spiral downward and valuations getting cheaper and cheaper, I wouldn't be surprised to start seeing a big pickup in mergers and acquisitions (M&A). Yesterday came news of the Israeli company NetManage, Inc. (NASDAQ: NETM) being acquired by Rocket Software for approximately $69 million, a 95% premium over the previous days closing price. That is also coming on the heals of Hewlett-Packard Company (NYSE: HPQ)'s purchase of Nur Macroprinters Ltd. (OTC: NURMF.pk) earlier in the week. Israeli M&A is back with a vengeance. A very slow year up until now has suddenly turned hotter than the New England Patriots.
With the focus squarely back on foreign firms picking up Israeli publicly traded firms for cheap, here are 3 M&A picks for to keep an eye on.
MOST NOTEWORTHY: The airline sector, Boeing and UBS were today's noteworthy downgrades:
Morgan Stanley downgraded the airlines sector to Cautious from Attractive citing higher fuel prices and the weakening economy. The firm lowered AMR Corp (NYSE: AMR) to Underweight from Equal Weight and Northwest Airlines (NYSE: NWA) and US Airways Group (NYSE: LCC) to Equal Weight from Overweight.
Morgan Stanley also downgraded Boeing (NYSE: BA) to Equal Weight from Overweight and has concerns that the 787 will not be retired as early as they previous believed.
Lehman downgraded shares of UBS (NYSE: UBS) to Underweight from Equal Weight following the company's $10B write-down and capital injection from Singapore, which they point out will dilute existing shareholders.
OTHER DOWNGRADES:
Credit Suisse lowered SAP AG (NYSE: SAP) to Underperform from Outperform.
Over the past few months, there's been a fall-off in M&A dealmaking. But that's not stopping traders.
According to a report from Reuters, there is some buzz that Microsoft (Nasdaq: MSFT) might buy SAP (NYSE: SAP). Hey, keep in mind that – several years ago – both companies talked about a combination.
On its face, it seems like a smart deal. SAP has a lucrative franchise in the enterprise resource planning (ERP) space. It's a business that should last for a long time – despite the competitive threats, even from Oracle (Nasdaq: ORCL).
However, SAP is currently in the process of closing its biggest acquisition – that is, the acquisition of Business Objects (Nasdaq: BOBJ). So does it have time to do a mega deal with Microsoft?
Besides, I suspect there would be serious integration issues. No doubt, cross-border deals can be very complex. Just take a look at the Alcatel-Lucent (NYSE: ALU) fiasco.
But as seen lately, the software space is consolidating rapidly. So, you really count anything out – even a transformative deal that would shake-up the industry.
MOST NOTEWORTHY: Electronics for Imaging, Fundtech and VIA Pharmaceuticals were today's noteworthy initiations:
Banc of America initiated Electronics for Imaging (NASDAQ: EFII) with a Buy rating and $26.50 target, as it sees leverage potential in 2008 from cost reductions and revenue mix and believes stronger controller revenue mix and ink from inkjets could help gross margin in 2H08.
JMP Securities expects Fundtech (NASDAQ: FNDT) to benefit from an upgrade cycle among large banks to improve their payment systems, starting shares off with a Market Outperform rating and $19 target.
Rodman & Renshaw resumed coverage of VIA Pharmaceuticals (NASDAQ: VIAP) with an Outperform rating and $4 target. The firm expects VIAP's VIA-2291, a treatment for Antherosclerosis, Ph II data expected in mid-2008 to drive shares.
OTHER INITIATIONS:
Oppenheimer initiated Ardea Biosciences (NASDAQ: RDEA) with a Buy rating and $15 target.
SAP AG (NASDAQ: SAP) was initiated with an Equal Weight rating at Lehman.
CIBC resumed coverage of Limelight Networks (NASDAQ: LLNW) with a Sector Outperformer rating.
Today's news that two software giants SAP (NYSE: SAP) and McAfee (NYSE: MFE) are expanding their R&D centers in Israel, points to the continued superiority of Israeli technology. Coupled with news that foreign investment in Israel jumped to $1.25 billion for October -- the biggest number since March -- it shows that international investors are still intrigued by Israeli ingenuity.
SAP increasing its Israeli exposure may be an indication that it may make an acquisition. Retalix (NASDAQ: RTLX) has been mentioned in the past as a potential SAP target. Retalix automates and synchronizes retail, distribution and supply chain operations for stores, headquarters and warehouses, and has made strong inroads into China.
While Israeli Hi-tech M&A has sagged this year, I would look to a revival in early '08.
Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC and Senior Editor of IsraelNewsletter.com. Author is long RTLX. He holds no position in any other stock mentioned as of 11/14/07.
Here are some highlights from this past week's earnings coverage from BloggingStocks: 
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SAP AG
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