Not much left among Y2K stocks

Investing

Analysts favor Keane, the best of the worst

April 11, 1999|By Bill Atkinson

ANALYSTS are high on Keane Inc., a computer software consulting firm that solves Year 2000 computer glitches for other companies.

Of the two dozen analysts who track Keane, 21 are advising investors to buy the stock, even though its shares have been punished, and trade at a mere $21.125, down from a high in July of $60.9375.

But the Boston-based firm is about as good as it gets in the world of Year 2000 fix-it companies.

Shares of these once high-flying operations have been trashed, and even the analysts are no longer excited about prospects for the industry.

"I don't have any favorites," said William Loomis, managing director of the technology research group at Baltimore-based Legg Mason Wood Walker Inc., who noted that performance of Y2K stocks in general has been "terrible."

The carnage has been widespread, even among highly regarded companies like Keane, which analysts believe is well positioned to bring in business after the turn of the millennium.

Computer Horizons Corp. of Mountain Lakes, N.J., for example, rocketed to a high of $50.50 a year ago, and now trades at $9.9375. Clearwater, Fla.-based IMRglobal Corp. reached $41.875 last April 16, and now trades at $14.875; and Cognizant Technology Solutions Corp. of Teaneck, N.J., hit $48 Feb. 16, but has slipped to $20.50.

The Year 2000 issue "has been a big problem, but it hasn't been of the scale people thought it was going to be," Loomis said.

There are hundreds of companies that claim to solve Year 2000 glitches, and many of them are small. They can be separated into two groups: "tools companies," which design software to clean up bugs that can crash computers, and "service companies," which employ technicians who go into corporations and modernize the systems.

Banks, air traffic control operations, manufacturers and brokerage houses are spending billions to make sure their computers don't melt down Jan. 1, 2000.

Y2K stocks zoomed about a year ago, driven partly by fear of disaster. If computers weren't fixed, experts argued, power plants would shut down leaving big cities in the dark, airplanes would fall out of the skies, and bank records would vanish because computers would have mistaken the "00" in 2000 for 1900.

"Investors and some of the Y2K alarmists painted dire pictures of what would happen at the beginning of next year and how big a challenge many companies face," said Thomas E. Browne Jr., equity analyst at New York-based Prudential Securities Inc. "Companies went out and positioned themselves to take advantage of it."

Investors threw money into many small, obscure Y2K companies, such as Peritus Software Services Inc. and Information Analysis Inc. Peritus rose to a high of $7.50 a share July 20, and now trades for 15.63 cents, while Information Analysis trades at 43.75 cents, down from a high of $16.375 April 21.

After a quick flight, Y2K companies were brought back to earth. One reason is that corporate spending for upgrading computer systems has fallen far short of estimates.

Deutsche Bank Research, which tracked the Y2K expenditures of more than 300 Standard & Poor's 500 companies, found they spent $10.6 billion as of Sept. 30, well below the $25 billion that was budgeted.

In addition, there has been a growing belief that business for many of these Y2K companies will dry up after the new year. And to an extent, the firms have been their own worst enemy.

They are "fixing the Y2K problems faster than people thought at less cost," Loomis said.

Still, the analysts haven't given up on the group. There are companies that have booked business well beyond the millennium.

Plamen Petkov, a software and computer analyst at New York-based Jackson Partners & Associates, likes Keane, but also favors Computer Horizons.

"They will come up as a strong company and continue to grow at a higher overall rate to the industry," he said. "Given the fact where the stock is, I think there is appreciation potential."

He also likes Computer Task Group Inc. because it is not too heavily focused on Y2K, and has been expanding its business into more profitable technology service areas as well as beating analysts' quarterly earnings estimates. The stock trades at $17, down from a high of $40.875.

"The company is well positioned to deliver solid results in the future," he said.

Some investors are betting that Y2K stocks will shoot higher as the millennium draws to a close, as companies realize additional work is needed. There is also the outside chance that cities will go dark, and planes will fall from the sky in January.

Loomis doesn't believe these disasters will happen, and he doesn't expect the beaten-up Y2K stocks to shoot up anytime soon.

"We just don't see that burst of activity anymore," he said.

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