Needham & Company Downgrades Progress Software (PRGS) to Hold

June 14, 2013 7:26 AM EDT
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Price: $28.48 +1.06%

Rating Summary:
    1 Buy, 7 Hold, 1 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 24 | Down: 17 | New: 14
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Needham & Company downgraded Progress Software (NASDAQ: PRGS) from Buy to Hold, saying macro malaise plus Apama sale raises questions on growth prospects.

Analyst comments, Scott Zeller "On Thursday, PRGS announced the sale of the Apama product line for an undisclosed sum (we estimate $50m or below) to Software AG (N/R). We believe Apama was one of the “jewels” at PRGS (Big Data/complex event processing), and we note it was held back during the CY12 asset sale that saw PRGS unload 10 other product lines; for several quarters, we’ve heard Apama and Corticon (together approx 10% total revs) were key to the Cloud and Big Data strategy of the “future Progress”, and Thursday’s action indicates a change in strategy, in our view. We also note earlier this week PRGS announced the acquisition of private company Rollbase, a small (we believe sub $10m deal size) acquisition for native cloud application development, operating in the same market as from CRM (Buy – covered by M. Huang). With these two transactions, we believe PRGS has changed its profile from a company with a tangible, established franchise to build from in Cloud, Big Data -- and now PRGS is starting “from scratch” for Cloud with the asset purchase of Rollbase. In our view, the remaining revenue of Progress (OpenEdge, Corticon, DataDirect, Rollbase) consists almost entirely of the historical Progress offering of custom development tools and database, with very limited revenue growth prospects (5% or less). We believe the pivot away from Apama, combined with the asset purchase of Rollbase, limits the attractiveness of PRGS to strategic buyers, and gives PRGS the appearance of a margin business rather than a growth business. With shares trading near $23.28, we believe shares are fairly valued and near the value of what financial buyers might be willing to pay for PRGS; we also consider our recent macro spending checks for EMEA, which suggest a continued weak IT spending environment. Lowering to HOLD, no change to estimates."

For an analyst ratings summary and ratings history on Progress Software click here. For more ratings news on Progress Software click here.

Shares of Progress Software closed at $23.31 yesterday.

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