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Can You Do it Faster, Better and Cheaper with Computers?
The computer has revolutionized the way this country works in the last few years. It seems almost hard to believe that 20 years ago almost no one used the Internet at work. Yes, banks and other big companies had computers; you could call IBM and get a mainframe, and personal computers were great at replacing typewriters and ledger books. Today, at some companies everything is done on a computer.
In one of the rare events that the power goes out or the Internet connections suffer outages due to a careless backhoe operator taking out the fiber optic cable, employees are forced to do many strange things. People start talking to their co-workers, gathering around the coffee machine or picking up the phone to actually call someone. It isn't long before some start cleaning their desks, or consider heading down to the local coffee shop for Wi-Fi, while the true workaholics are already reconnected with laptops and cell phones.
There is no doubt that computers have made the modern age much more efficient. We are able to connect faster, learn more and operate more efficiently. While any small business can put a computer or two in the office, big companies operate dedicated networks and a lot of special software to make employees efficient. Networking the machines, writing custom applications, keeping databases in sync and everything online can be a full-time task for a team of people, and is just what many companies like IBM, Computer Associates International (CA), BMC software (BMC) and MICROS Systems (MCRS) do.
While having a computer may seem like a great productivity boost, anyone who has worked on one knows that it is not always the case. Computers crash, require time for training, need to be updated constantly, and at times even seem to cause more problems than they solve. If the right information is not getting to the right people at the right time, there can be problems. Software has to be designed properly, implemented successfully and used correctly in order for productivity gains to be made. When the system works right, though, an amazing amount of work can be done by a very small team.
One company that implements software solutions is CA Inc (CA). Previous called Computer Associates International, CA Inc. can implement a full line of software solutions for large and complex tasks. They are able to handle complex database problems or customize a software solution as needed. The company brought in over 4 billion in revenue last year and is looking at 8.3% growth in sales this year.
The story gets even more compelling when you start looking at the bottom line and see that earnings have grown from $0.22 per share in 2007 to $1.60 per share in 2011. In 2012 analysts expect earnings near $1.91 a share. The company is expected to report quarterly earnings of $0.52 per share after the market closes on May 10. Last quarter it reported earnings of $0.65 per share, beating expectations of $0.54. The growth in revenues also comes at a time when the company has actually gotten rid of employees. In 2005 the company had 15,300 employees and in 2011 it had 13,400, all while sales went from $3.5 billion to $4.4 billion. In other words, using revenue-per-employee, each worker today is 43% more efficient than 6 years ago! This is the reason the company has been able to maintain earnings right through the recent recession and has been reducing debt as well and buying back shares. The company has a three STARS S&P hold rating. While CA may be good at implementing systems for its customers, it sounds like it has also implemented some efficient systems in itself.
Take a look at CA stock which is trading near $26.54 with an eye to selling a November 27 covered call for net debit of $25.14. That would give the trade an assigned return of 7.4% and 5.2% of downside protection. The trade is only active for 7 months, so the annualized return is actually higher at 13.4% (for comparison purposes only). The stock pays a 3.8% dividend yield, which, given the lower cost basis of the covered call, is actually edged higher to 4.0%. A covered call may allow you to pull some of those computer-efficient earnings from the company right into your portfolio.
If you have had any additional thoughts, ideas or questions for Kevin, feel free to e-mail him at kkersten@investorsobserver.com.
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