CPWR Upgraded to Outperform

On Nov 27, we upgraded Compuware Corp. (CPWR) to Outperform based on its improved prospects. Compuware Corp focuses on software and services, for the information technology (IT) industry worldwide. The company became a Zacks Rank #2 (Buy) stock based on improving fundamentals.

Why the Upgrade?

Compuware reported second quarter fiscal 2014 earnings of 9 cents per share, which beat the Zacks Consensus Estimate by 3 cents. Earnings (including stock-based compensation and related tax effect) jumped 49.6% from the year-ago quarter and 31.8% from the previous quarter. The strong earnings growth was primarily driven by lower cost and improving margins.

Following the release of second quarter 2014 results, the Zacks Consensus Estimate for third quarter has gone up 9.1% to 12 cents per share over the last 30 days. Moreover, the Zacks Consensus Estimate for fiscal year 2014 and 2015 has gone up 2.7% and 4.3%, respectively over the same period.

What is the cause for the strong positive bias on the company?

Compuware’s growth story looks compelling. Moreover, as per the latest report released by industry research firm IDC in Aug 2013, IT spending in Western Europe is expected to increase significantly at a compound annual growth rate of 7.4% over the 2012-2017 period. We believe, this is going to benefit Compuware as well.

Management provided a modest revenue growth outlook for the upcoming quarter. We believe that the ongoing restructuring plan will benefit the company’s profitability going forward. Moreover, the debt repayment measures implemented by the company will help it in the long run.

Additionally, strategic partnership and acquisitions will also boost top-line and edge out competition in the long run. These are reasons, which compel us to upgrade our recommendation from Neutral to Outperform.

Other Stocks to Consider

Besides Compuware, other stocks worth considering in the technology sector include Netflix Inc. (NFLX) and SanDisk Corp. (SNDK) having a Zacks #1 Rank (Strong Buy) and Qihoo 360 Tech Co Ltd. (QIHU) having a Zacks #2 Rank (Buy).

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