Merrill Lynch to Sue NETA!
Claiming their analyst hurt hand promoting stock. NETA to countersue, claiming head hurt by table.
Published in SJ Mercury today:
sjmercury.com
VALUE PLAY: OK, so you more-or-less wisely held off buying Network Associates Inc. (Nasdaq, NETA) and its predecessor, McAfee Associates Inc., in the four months since McAfee disclosed its merger with Network General Corp.
Wise because the stock only now is approaching its pre-deal price of $66.38. Not so smart because you missed getting in when the stock hovered in the mid-$40s for much of December.
No matter, says Merrill Lynch & Co. software analyst Bruce D. Smith. He's been banging the table on Santa Clara-based Network Associates since its stock's pre-Christmas depths, when he called it ''the next major software company.''
Smith has a knack for this sort of thing. He urged clients to buy Infoseek Corp. (Nasdaq, SEEK) at $8; despite doubts raised in this column, the Sunnyvale search-engine company raised $40 million last week at $13.44.
The New York analyst remains high on Network Associates, in part because the company is trading at discount to his guesstimate on its growth rate. It's typical for tech companies to be worth a ''multiple'' over their current-year projected earnings equal to their growth rates.
At just under $63, Network Associates is worth about 26 times Smith's estimated 1998 earnings of $2.45 per share. But he reckons that long-term earnings growth is more like 35 percent. That means that if he's right, the stock is worth more like $86. It closed Tuesday down 2 percent at $62.03.
''Obviously I agree with Bruce,'' quips Prabhat K. Goyal, Network Associates' chief financial officer.
More seriously, Goyal contends that Microsoft Corp. (Nasdaq, MSFT) represents a positive double whammy for Network Associates. First, all of Network Associates' products -- which focus on protecting software and networks from viruses and more nefarious forms of intrusion -- are built to run on Microsoft's Windows NT networking operating system. Second, the software giant seems uninterested for now in competing directly against Network Associates.
''We have a good window of opportunity to become a third-party supplier to Microsoft,'' Goyal says, meaning Microsoft's customers also can buy his company's products. Microsoft could turn its guns on Network Associates, of course. Says Goyal: ''We've been careful about staying away from any area where they might have an interest.''
A final reason to pay attention to Network Associates now. Chairman and CEO William L. Larson will gather financial analysts next week for a presentation at the former Menlo Park headquarters of Network General. When companies host analysts to pitch rosy outlooks -- the kind Larson likes to discuss best -- their stocks tend to move up. |
