Compuware Calls In the A-Team

In fiscal 2007, enterprise-software firm Compuware (Nasdaq: CPWR  ) grew revenue by 0.06%, to $1.2 billion. That may sound underwhelming, but it's actually the company's first such increase in seven years. And Compuware's belief that it can increase those sales another 5% to 10% over the next year has most definitely caught investors' interest.

On Tuesday, the company reported Q4 results. Revenue edged up 1.1% year over year, to $313 million, while earnings rose 20% to $67.5 million, or $0.21 per share.

Compuware's Covisint division is a key growth driver. Its software helps manage supply chains for major customers such as General Motors (NYSE: GM  ) , Johnson Controls (NYSE: JCI  ) , and CIGNA (NYSE: CI  ) . Revenue here grew 65% year over year; Covisint should generate $50 million to $55 million in sales for the full year, and $7 million or so in profit.

Despite this encouraging performance, the bulk of Compuware's business remains stuck with slow growth. Its information technology (IT) consulting division faces intense competition, and its mainframe software division competes in a mature market.

To compensate, Compuware plans to focus on cost-cutting. It's assembled a group of top employees, the "Agents A-Team," with a minimum goal of $50 million in savings by the end of fiscal 2008.

For a company that already generates significant cash flow, this should be a nice boost. Compuware expects operating cash flows of more than $200 million for fiscal 2008.

What to do with the money? It seems the company will focus primarily on share buybacks, aiming to reduce its share count from 309 million to between 200 million and 220 million.

So far this year, Compuware's stock has spiked 27% to $10.67, a 52-week high. This may stem partly from its improved fundamentals, but it may also owe to buyout rumors. I think Compuware would be a nice fit for a player like IBM (NYSE: IBM  ) or Oracle (Nasdaq: ORCL  ) . Still, I pity the Fool who plays the buyout game in hopes of a quick profit. Interested investors should probably wait for the hype to subside a bit before thinking about the stock.

I love it when further Foolishness comes together:

Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. He is currently ranked 1,590 out of nearly 29,000 ranked investors in CAPS.

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