FileNet flies on Wall Street

Shares of FileNet Corp. rose $6.38 per share, or 39 percent, Friday in early-afternoon trading after an analyst from Morgan Stanley upgraded the stock's rating from "neutral" to "strong buy."

The Costa Mesa, Calif., developer of document-imaging and electronic-management software was among the NASDAQ's most active issues with more than 5 million shares changing hands.

"The company is strong and in the midst of product and management transitions, but the underlying technology is excellent," said Suzanne Silverberg, an analyst at Burnham Securities. "For FileNet to have continued success, they have to focus on bringing a coherent message to the market place while digesting their acquisitions and new technology."

Bill Farrell, the Morgan Stanley analyst who upgraded FileNet's stock, said shares could easily double their value in the next six-to-nine months based on FileNet's relatively low valuation.

Last quarter, FileNet reported $31 million in revenue but lost $5 million -- or $0.25 cents per share -- in net income. Farrell upped his third-quarter earnings estimate to $0.06 per share from $0.01 per share, and his fourth-quarter estimate to $0.20 per share from $0.03 per share.

"I'm expecting them to post a loss this fiscal year of about $0.30 per share, which means they should post a profit of about $0.30 cents per share in the second half of this year," Burnham's Silverberg said.

FileNet, which went through a similar business-model overhaul in 1993, has a history of bouncing back from disappointing quarters. "They went through this before and came out fine and I'd expect the same thing to happen this time," Silverberg said. "Wall Street might have lost some confidence in the management team awhile back, but right now this a company with solid fundamentals."