Will This Company Ever Get Its Act Together?

It seems like every time software firm Compuware (Nasdaq: CPWR) looks like it might be on the right path, the train derails -- and frankly this conductor is getting tired of it. Although I've never actually taken the plunge and purchased Compuware, I have tracked it on my watchlist for many years, and I have to say that it's pretty much been a nightmare for optimists.

Take, for example, the company's preliminary third-quarter guidance, which it issued before the opening bell yesterday. Despite returning many of its business segments to growth, its application performance management and mainframe solutions division failed to meet its sales targets. Compuware subsequently guided its full-year EPS to $0.40-$0.42, which is markedly lower than Wall Street's consensus estimate of $0.56, but optimistically pointed out that every business segment would deliver sales growth in fiscal 2011.

Unfortunately, I've lost my patience waiting for Compuware to get its act together -- especially when cheaper alternatives to the company are out there. Have a look for yourself at how Compuware compares next to some of its larger software peers:

Source: Morningstar, TTM = trailing 12 months.

You could make a case from these figures that its peers aren't that much cheaper than Compuware based on trailing-12-month earnings alone. But there is an unmistakable gap in sales and earnings growth over the past three years between Compuware and its much larger peers.

Another interesting factor to consider is that earnings estimates have been falling across the board in the software sector. JDA Software put up a rotten egg last week, and all four software big boys mentioned above have seen at least one analyst lower EPS projections recently. Yet somehow Compuware always finds its way to being the worst of the bunch.

The final nail in the coffin has to do with Compuware's cash position relative to its larger counterparts. Compuware boasts $62 million in net debt whereas Microsoft, Oracle, and CA Technologies are all sitting on sizable piles of cash after their debts are considered. Only IBM is in what I would consider a worse cash-to-debt position than Compuware, but its considerably faster growth rate makes up for that shortfall.

Ultimately, what this comes down to is whether I think Compuware deserves another chance to prove itself -- and I'm pretty sure I'm ready to cast Compuware off. Compuware has had its opportunities to differentiate itself from the pack and it simply hasn't done that. I'm planning to make a CAPScall of underperform on Compuware going forward as I see little reason to own a company with such a poor track record of meeting its growth targets.

What's your take on Compuware? Share your thoughts in the comments section below and consider adding Compuware to your free and personalized watchlist so you can keep up on the latest news with the company.

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