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Strategies & Market Trends : Market Gems:Stocks w/Strong Earnings and High Tech. Rank
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To: red_dog who wrote (58826)8/31/1999 4:48:00 PM
From: red_dog  Read Replies (1) of 120523
 
ANALYST(S): POWERS, JOHN

RATING: BUY
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Synopsis:

The following synopsis is qualified in its entirety by the more detailed information contained in the full research report, including the discussion of certain risks associated with an investment in this security contained in "Investment Risks."

Research dated prior to September 1, 1998 was prepared by an entity that was acquired by BancBoston Robertson Stephens Inc.

Key Points:

ISSX announced that it will acquire Netrex, a large managed security services company. ISS will buy Netrex in exchange for 2,450,000 shares of unregistered stock, valued at $56.7 million at today's market price. The acquisition will be accounted for as a pooling-of-interests. ISS plans to register up to 28% of this stock in a filing with the SEC. Netrex's revenues for 1998 were $21.8 million, and Netrex has more than 500 security-conscious customers. Netrex and its ePatrol services will be the basis for ISS's new eServices Organization.

This acquisition is very consistent with ISS's stated strategy. ISS has been interested in hosting intrusion detection capabilities for its customers that do not have sufficient IT staff to manage such a system internally. By acquiring Netrex, one of the largest managed security services providers, ISS gets the expertise it will need to build this new eServices business unit into a substantial part of its revenue.

Summary and valuation. At its current market cap of $946 million, the stock trades at 13.4x expected 1999 revenues and 9.2x expected 2000 revenues. We believe that this is a very attractive valuation for such a high quality company. Consequently, at the current valuation we rate the stock as a Buy.



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