Analysts Downgrade Cognos On Overdone Takeover Mania

Cognos (COGN) shares have reversed course after Monday’s big run-up, as analysts at both Roth Capital and Jefferies & Co. downgraded their ratings on a valuation basis.

Monday, the business intelligence software company’s shares jumped following the news that SAP (SAP) had agreed to buy Business Objects (BOBJ). That left Cognos as one of the few remaining companies in the sector without a dance partner, sparking speculation that it could be a target for Hewlett-Packard (HPQ), IBM (IBM) or Microsoft (MSFT). But Tuesday the speculation was fading.

Jefferies & Co.’s Robert Schwarz cut his rating on the stock to Hold from Buy. He says the stock, which Monday ran up 14% to $50.50; “appears to fully reflect take-out multiples.” He keeps his price target on the stock at $48.

Likewise, Roth Capital’s Nathan Schneiderman drops his rating to Hold from Buy, even as he ups his target to $54 from $49. He says Cognos investors “have already captured the vast majority of the upside of a potential takeover bid.” He also worries that a takeover could take longer to materialize than some expect, “which could frustrate investors.” And he says there is a possibility that the company could miss November quarter EPS targets, “as the acquisition news could easily disrupt sales cycles.”

Comments

[East Coast]

Goldman's studies have shown that purchasing managers prefer independent BI providers, as opposed to the combine ventures that Oracle/Hyperion and SAP/BOBJ provide. Coming into their traditionally strong 3rd and 4th quarters, with a strong pipeline of deals and increasing sales force, Cognos shareholders will benefit from the consolidation on the revenue side, as well as acquisition possibility.