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Informatica's Earnings Outlook Falls Short of Expectations

Analysts' expectations lower, even as INFA's earnings rise

by 10/21/2011 11:15:47 AM
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Informatica Corporation (INFA - 43.16) stepped into the earnings confessional after Thursday's close. INFA reported a third-quarter profit of $27 million, or 24 cents per share, rising 14% from last year's earnings of $22.5 million, or 21 cents per share. On an adjusted basis, INFA earned $38.1 million, or 34 cents per share. Revenue, meanwhile, rose a record 21% to $195.9 million from $161.3 million on a year-over-year basis. Earnings beat analysts' expectations of 32 cents per share on revenue of $195.4 million.

However, INFA issued fourth-quarter guidance below expectations. The firm projected revenue between $218 million and $228 million, compared to the Street's forecast for sales of $228 million.

As a result, a slew of downgrades hit INFA this morning. Specifically, Bank of America-Merrill Lynch cut its price target to $55 from $59; Evercore's price target dropped to $50 from $55; Stifel's price target went to $56 from $60; and representing the heftiest cut is UBS' price target of $55, down from $67. Furthermore, Roth Capital downgraded INFA to "neutral" from "buy," and slashed its price target to $46 from $55.

Option activity was heavy on INFA during the course of Thursday's session, as traders appeared to be anticipating the company's earnings reports ahead of expiration. Calls and puts traded at five times and three times their average daily pace, respectively. Speculators were mostly concentrated on the quickly expiring October series of options, where 1,257 contracts crossed the tape on the October 45 call, and 779 contracts changed hands on the October 45 put. The majority of both contracts were traded at the ask price, and open interest increased overnight, indicating new positions being bought to open. Interestingly, both the bullish bet and the bearish bet are home to peak call and peak put open interest, respectively.

Technically, the stock's near-breakeven, year-to-date gain of 2.2% does not accurately reflect the struggles INFA has seen on the charts. INFA enjoyed a nice rise throughout the early part of 2011; however, after reaching an annual high of $62.42 on July 7, the stock saw itself ushered lower by its 10- and 20-day moving averages. INFA managed to regain a foothold above this trendline duo on Sept. 13, and has surrendered its perch today.

Daily price chart of INFA since January 2011

As today's session quickly draws to a close, October 45 call holders may find themselves capitulating, as INFA's chances of muscling atop the $45 level grow increasingly slim.

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