Why Tibco Software Will Underperform in 2014

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Tibco Software (NASDAQ: TIBX  ) slipped 1.5% this morning after Wedbush downgraded the business software technologist from outperform to neutral.

So what: Along with the downgrade, analyst Steve Koenig planted a price target of $25 on the stock, representing just 7% worth of upside to yesterday's close. While contrarians might be attracted to the Tibco's slump in recent months, Koenig believes that Wall Street continues to overestimate the company's near-term earnings potential.

Now what: According to Wedbush, Tibo's risk/reward trade-off is pretty balanced at this point. "[W]e think the bear argument that TIBX relevance is suffering from the shift to cloud computing has some validity, at least until TIBX can bring to market a more compelling set of cloud offerings," said Koenig. "On this issue, our checks over the last two weeks suggest TIBX is trailing upstart competitors such as MuleSoft and Dell Boomi in fielding cloud offerings with the right combination of ease-of-use and capability for real-time integration of SaaS applications." With the stock now off more than 10% over the past three months and trading at a forward P/E of 16, however, it's hard to believe that a good chunk of that risk isn't already baked into the valuation.

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