Veritas Stock May Have 'Material Upside'
03.04.04, 3:25 PM ET
forbes.com
Merrill Lynch lifted its rating on Veritas Software (nasdaq: VRTS) shares to "buy" from "neutral," and set a 12-month price target of $38. The research house also increased its full-year earnings-per-share estimates for the company to 94 cents from 93 cents for 2004 and to $1.08 from $1.02 for 2005. "We have been generally impressed with the company's fundamentals but have, until now, been held back due to valuation," Merrill Lynch said. The research firm calculated that Veritas' stock currently is around 26% below its 52-week high of $40.68 and concluded, "We believe that there is now material upside to the shares." Merrill Lynch said that investors "overreacted" to the company's first-quarter earnings guidance, which it termed "conservative." In the research firm's view, investors also overreacted to slowing sequential license growth in the fourth quarter, which Merrill Lynch attributed to a difficult comparison period. The research outfit said the company's pipeline of new deals appears to be strong. However, it said the company is facing certain risks, including increased competition in backup products from EMC (nyse: EMC) and its Legato unit. Another risk detailed by Merrill was a "relatively high" exposure to the Solaris platform from Sun Microsystems (nasdaq: SUNW); by percentage of license revenue, Merrill expects Solaris to account for 25% in the fourth quarter of 2004, down from 34% in the first quarter of 2003. Merrill said it calculated that backup software represents about 60% of Veritas' license revenue and noted that this division is expected to only have revenue increases in the mid-single digits going forward. |
