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Trimming on Third-Quarter Strength

This company's moved higher after last night's outstanding report. We're booking profits, but keeping a large stake.
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It's official. There is at least one software company out there that is experiencing strong pricing for its products and growing sales at 50%.

Tibco (TIBX) reported third-quarter earnings last night, and the company beat estimates and guided slightly higher for the fourth quarter on its conference call. The company now expects to earn 8 cents a share next quarter, up 1 cent from original guidance of 7 cents a share, on $116 million to $118 million in sales, up from $112 million to $116 million. Shares traded up some 20 cents cents last night, and remain strong this morning, so we are going to lighten this position up by 500 shares here at $7.83. To be clear, this is just profit-taking in our largest position. With 1,500 shares left after the sale, Tibco will still account for about 12% of the portfolio and remains one of our top picks.

The Staffware acquisition, which we are emphatically bullish about because it gives the company access to European opportunities as well as verticals with current clients in the U.S., is running at or ahead of plan. Some critics say Staffware deals are lower margin, but they fail to point out the operating leverage that should occur over the next 12 months as the company uses one brand to leverage the other in its existing markets.

Tibco added another 82 customers in the quarter, had an $8 million deal (falling short of the 10% customer analysts love to see), and saw its operating margins run to 15% from 3% in the year-ago period.

What's next? More sales reps will be hired, the Staffware integration will be completed, and a full quarter of selling its predictive business events software should bolster Tibco's fourth-quarter results. We expect a potential 10% deal, looser spending by CIOs, and increased emphasis on the sales team to provide upside in the fourth quarter.

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