Deutsche Bank Downgrades Rally Software Development (RALY) to Hold
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Deutsche Bank downgraded Rally Software Development (NYSE: RALY) from Buy to Hold with a price target of $15.00 (from $30.00).
Analyst Nandan Amladi said, "Rally reported mixed F1Q15 results with revenue below and EPS above expectations, with revenue/EPS of $19.4m/($0.27), versus our estimates of $19.5m/($0.52) and the Consensus of $19.6m/($0.50), due to slower than expected seat count growth (12k additions during the quarter vs. 16k in the prior quarter) as the negative impact of lower sales was offset by lighter expenses. As the market leader, we see RALY well-positioned to take advantage of the shift towards Agile software development longer-term, but near-term execution issues exacerbated by investor disdain for small-cap growth stocks push us to the sidelines."
"While the headline revenue numbers and guidance came shy of consensus, adjusting for one-time events, billings were up 18% if we include the $2.1m ACV ($3.7m total) telco deal that is off-balance-sheet—a lot better than the 3% computed number, but lower than the TTM average of 21%. Seat-count grew 23% y/y and 6% sequentially, a bit slower than TTM average of 33%. Pricing trends have apparently been stable, even though competition may be intensifying on the margin from the smaller, private vendors. The improved opex profile should assuage investor concerns on cash burn versus the outlook provided on last quarter’s call. And finally, sales productivity disrupted by reorganization and rapid hiring of new heads will need to stabilize as we progress through FY15. Net/net, we lean towards the half-empty side, noting that the company will need a quarter or two to regain investor trust," he added.
Shares of Rally Software Development closed at $12.22 yesterday.
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