Shares of Irvine-based business software maker Epicor Software Corp. fell Tuesday after an analyst downgraded the stock on concerns about slower sales at the company’s target customers and slimmer profits.
Investors sent shares down 6% on a recent market value of about $500 million.
Peter Goldmacher, an analyst at Cowen & Co. in San Francisco, lowered his rating to “underperform” from “neutral.”
He also lowered his outlook for the rest of the year and for 2009.
For this year, Goldmacher is looking for profits of about $45 million on sales of $522 million.
That’s below Wall Street’s average estimate of $45 million in profits on sales of $524 million.
Next year, he is expecting profits of about $55 million on sales of $567 million.
On average, Wall Street is looking for profits of $55 million on sales of $570 million for 2009.
Goldmacher listed a few concerns for Epicor in a note to clients.
Its high “exposure” to customers that aren’t fairing well in the down market, including automakers, retailers, manufacturers and hotels, is troublesome.
“We continue to get data pointing to a slowdown in applications purchases and consulting projects, and we believe current consensus estimates overstate the company’s ability to maintain margins in a deteriorating environment.”
He looked at a big transition that’s set to happen this year when the company starts selling a new software suite, dubbed Epicor 9, that’s due out in the fall.
He also questioned Epicor’s strategy of selling to larger companies, which could shrink profits in the short term.
“This issue is exacerbated by the ongoing turmoil in the sales organization caused by a strategic shift to start moving up market and chasing larger deals, which introduces incremental competition and volatility,” Goldmacher said. “The product cycle transition could amplify these issues as customers delay both license and services purchases in advance of a new offering.”
Epicor has seen three downgrades since the start of the year. Shares are off some 40% for the same period.
