By Dick Stark

What a ride! After warning about the possibility of a downgrade several times during the debt ceiling debate, Standard & Poor’s (S&P) on Friday August 5 down-graded the United States credit rating from AAA to AA+, with a negative outlook for long-term debt.  On Monday, August 8, the first trading day after the S&P downgrade, the bond market and gold rallied as investors fled riskier assets in search of safety.  Meanwhile, the equity market, already rattled by the uncertainty created by the debt ceiling debate, suffered another blow with the Dow closing down 634 points.  Since then the Dow has been on a roller coaster ride with wild swings in both directions.

But what does all this bad economic news mean to RightStar?  Well, for starters, not too much.  The financial crisis of 2008 was the result of consumers and companies having loaded up on years of inexpensive credit. Then, when the housing bubble burst, massive amounts of deleveraging led to the Great Recession.  In contrast, today’s predicament is an issue of confidence.  Investors have lost confidence in governments around the world and particularly in their ability to grow economies and to get their fiscal house in order.

Despite the market selloffs, there’s plenty of good news out there. Since 2008, companies have trimmed headcount and cut costs with the result improved profitability.  According to Bloomberg, the S&P 500 is expected to post 13.3% year-over-year earnings growth in the second quarter. Additionally, corporations are hoarding record levels of cash on their balance sheets.

BMC, which has been a Wall Street wonder the past several years saw a 32 percent stock price drop after releasing their Q1 earnings July 27.  In that report, BMC reported flat ESM bookings, but all other numbers beat the street estimate: EPS up 16%, revenue up 9%, license bookings up 43%, and so on.

The result: BMC stock is a terrific value now and this was recognized yesterday by several analysts including Raymond James.  That report lifted BMC from an outperform to a strong buy with a target price of $59.   On what basis?

• Data Center and Cloud Management. Data center optimization and cloud lifecycle management is hot and BMC has a huge lead over the competiton. A good datapoint is a very large BladeLogic Server Automation job we’re about to begin.
• Service Support includingRemedy onDemand and RemedyForce.  RightStar has been involved in multiple RoD and RF opportunites and the pipeline looks strong for both on-demand and on-premise offering for the balance of the year.
• Service Assurance. This past week we kicked off a Capacity Management implementation (aka Neptuny) which we hope will be the first of many.  Effective capacity management provides a terrific ROI as it optimizes resources and applications.

The answer at both RightStar and BMC is not to batten down the hatches, but instead, sell our way out.  And, look for future investments. At any rate, we’ll continue to push all BMC products as AAA rated, a safe investment, with amost zero risk.  No junk sold here!