EUR 850.00 For Business Accounts Only

Morningstar | We expect CA to generate economic profits for at least the next decade.

CA’s pervasive presence in mainframe infrastructure software provides it with a dependable and sizable source of cash flow. Nevertheless, we believe the firm faces secular growth headwinds in the mainframe market, owing to the legacy nature of the platform. We think the firm will have to direct its cash proceeds from the mainframe business toward higher-growth opportunities in the distributed computing environment if it wants to remain a leading provider of IT operations management software over the long term. With its loyal customer base, an evolving product portfolio, and a strong financial position, we think CA remains a solid, albeit uninspiring, business.Given CA’s deeply entrenched, ubiquitous, and profitable position in the mainframe market, we expect the company to generate economic profits for at least the next 10 years. The firm's products are interwoven into an organization's mission-critical processes, and there are high switching costs associated with replacing entrenched IT operations management software. The firm's mainframe business benefits from high switching costs and limited substitutes, while the enterprise solutions business also benefits from switching costs, even though they are narrower, given more competition in this higher-growth space.In order to expand, CA has positioned its portfolio to take advantage of the industrywide shift to an application economy. The company’s strategic focus and growth strategy have coalesced around three key topics: agile management, DevOps, and security. We think the majority of enterprises will look to become software-driven businesses to achieve competitive differentiation in the future, and we expect CA to play an adequate part in helping enterprises achieve this goal. CA’s acquisition of Rally, Automic, and Veracode signifies its commitment to its strategy, and we believe the acquisitions provide CA with greater agile software development tools in order to speed up application development. Still, CA cannot escape its past. From an overall growth standpoint, we forecast mediocre low-single-digit long-term growth, owing to what we believe will be a low secular decline in its important mainframe business.