EMC, Storage and Security Stocks Fall on Downgrades
from Bloomberg
By Michael Lovell
New York, Jan. 2 (Bloomberg) -- Shares of computer data- storage and security software companies including EMC Corp., Veritas Software Corp. and VeriSign Inc. plunged after Robertson Stephens said reduced spending by customers may cut profit.
Robertson Stephens analysts Dane Lewis, Evren Dogan and Connie Pon downgraded EMC, the No. 1 corporate data-storage system maker, Veritas and VeriSign to ``long-term attractive'' from ``buy.'' Some downgraded shares fell by a fifth or more.
Concerns about a slowing economy will prompt businesses to curb spending on storage and security software in the first half, the analysts wrote in a report. At the same time, large corporate customers can spend less on new computers as competition from Internet-related rivals eases, the analysts said. Personal- computer makers such as Dell Computer Corp. and Gateway Inc. have cut 2001 forecasts already, expecting corporate sales to fall.
``The slowdown in IT (information technology) spending in 2001 will impact even critical components such as storage,'' the investment bank's analysts wrote.
EMC fell $12.19, or 18 percent, to $54.31. Veritas, which makes software that manages stored data, fell $21.50, or 25 percent, to $66. VeriSign fell $12.38, or 17 percent, to $61.81. VeriSign leases software for processing payments on line and issuing computerized IDs that companies use to provide secure e-mail to consumers.
EMC Outlook
The Robertson Stephens analysts cut their 2001 sales target for EMC to $11.7 billion from $12.1 billion and earnings per share to 97 cents from $1.02. EMC had forecast 2001 sales of $12 billion. For the first nine months of 2000, the company had $6.25 billion in sales.
EMC hasn't changed its outlook for 2001, spokesman Mark Fredrickson said. The company also hasn't heard that its customers plan to reduce spending on data storage, he added.
``The nature of our products are so critical, it's the last area to be cut,'' he said.
Network Appliance Inc. fell $12.75, or 20 percent, to $51.44. The Robertson Stephens analysts cut their rating on the shares to ``long-term attractive'' from ``buy.''
``In a normal world, Network Appliance wouldn't be down'' so much on Lewis's report, said Philip Orlando, chief investment officer of Value Line Asset Management Inc. The report is having an outsized impact because investors are predisposed to sell computer-related stocks, said Orlando, who owns shares of Network Appliance and EMC.
``The psychology is horrible,'' Orlando said. Investors fear that ``the economy is going into a recession. You're taking good companies and punishing them well beyond what makes good economic sense.''
Among other data-storage system makers, the Robertson Stephens analysts downgraded CacheFlow Inc. and Quest Software Inc. to ``buy'' from ``strong buy,'' and reduced their ratings on Network Engines Inc., Inktomi Corp. and NetIQ Corp. to ''long-term attractive'' from ''buy.''
CacheFlow fell $3, or 18 percent, to $14.06. Quest fell $4.38, or 16 percent, to $23.69. Network Engines fell $1.91 to $2.28; Inktomi fell $3.31, or 19 percent, to $14.56; and NetIQ fell $21.75, or 25 percent, to $65.63.
Security-Software Downgrades
The Robertson Stephens analysts lowered ratings on security- software makers, whose products prevent unauthorized access to computers and networks. Netegrity Inc. was cut to ``buy'' from ``strong buy,'' and Certicom Corp. and Internet Security Systems Inc. were reduced to ``long-term attractive'' from ``buy.''
Netegrity fell $13.69, or 25 percent, to $40.69. Certicom fell $3.75 to $16.63, and Internet Security Systems fell $13.25, or 17 percent, to $65.19.
Among the downgraded companies, Robertson Stephens helped underwrite share sales or arranged private stock sales in the past three years in Certicom, Internet Security Systems, Netegrity, NetIQ, Network Engines, Quest and VeriSign, the investment bank's report said.
Analysts worry that a slowing economy will cut sales, even in the fast-growing computer data-storage market. An index of U.S. manufacturing contracted in December for the fifth straight month because orders and production declined.
The National Association of Purchasing Management's factory index fell to 43.7 last month from 47.7 in November. A reading below 50 signals a contraction, and December's result was the lowest since April 1991, the end of the last recession.
High Valuations
The high valuations of shares of some data-storage companies make investors nervous, especially if the economy slows dramatically, analysts have said.
Although share prices of data-storage companies such as EMC have dropped, they're still highly valued when compared with earnings. EMC has fallen from a record $104.94 reached in September, yet it still trades at 53 times estimated per-share earnings for 2001. That's almost triple the forecast price-to- earnings ratio of about 20 for the Standard & Poor's 500 Index.
Network Appliance shares have lost two-thirds of their value since Oct. 20, yet they trade at 125 times estimated per-share earnings for the fiscal year. While Veritas has declined from a high of $174 in March, it trades at about 77 times estimated earnings per share.
Best Regards, J.T. |
