Software Stocks Slide After Brokerages Trim Earnings Estimates for Key Firms

Software stocks led the technology sector lower Wednesday after three major brokerages cut their earnings estimates for key software firms and signaled that industry sales might not pick up until 2003.

Merrill Lynch, Prudential Securities and U.S. Bancorp Piper Jaffray reduced their expectations for the current quarter and for this year and 2002 for virtually every software company they cover.

The downbeat comments sent a number of software issues to new 52-week lows and helped drag the Nasdaq composite down 2.5% for the day. A Goldman Sachs index of 55 software issues tumbled 5.5%.

Even before the Sept. 11 terrorist attacks, inquiries about software sales trends “were indicating another challenging quarter” amid weakness in technology sales in general, said Merrill analyst Chris Shilakes. Now, the attacks “and the subsequent economic turmoil have served to amplify the challenges,” he said.

Shilakes cut earnings estimates for most of the software names Merrill follows, including such business-to-business e-commerce software firms as Ariba (ticker symbol: ARBA), which fell 21 cents to $1.75; BEA Systems (BEAS), down 85 cents to $9.94; Commerce One (CMRC), down 28 cents to $2.29; and I2 Technologies (ITWO), off 94 cents to $3.

In the last year, Ariba shares had been as high as $173 and Commerce One had been as high as $84.

The Merrill analyst also reduced estimates for larger software companies, including PeopleSoft (PSFT), Siebel Systems (SEBL) and Peregrine Systems (PRGN), though he said that longer term, “these leading vendors will weather the storm.”

Prudential also reduced estimates for Siebel and PeopleSoft, among other companies. Analyst Timothy Getz cut his fiscal 2001 earnings estimate for Siebel to 47 cents a share from 55 cents. The fiscal 2002 estimate was cut to 50 cents from 60 cents.

Siebel shares slid 61 cents to $13.72. At the current price, the stock sells for 29 times Getz’s 2001 earnings estimate. The average U.S. blue-chip stock’s price-to-earnings ratio is about 20.

PeopleSoft dropped $1.45 to $18.45 on Wednesday while Peregrine slumped $1.77 to $13.73.

U.S. Bancorp Piper Jaffray cut estimates for companies including E-Piphany (EPNY) and JDA Software (JDAS). E-Piphany fell 63 cents to $4.12 while JDA lost $1.35 to $11.95.