=Network Assoc Stk -3: Charges Stem From 2 Acquisitions
Network Associates said Wednesday its preliminary fourth-quarter earnings rose 62% from a year ago to 47 cents a share, beating the 46-cent First Call consensus estimate based on 20 analysts' predictions.
The $220 million in charges subject to SEC review stem mainly from the company's acquisitions last year of CyberMedia Inc. for about $130 million and Magic Solutions for about $110 million, Larson said.
Analysts were mixed in their views of the significance of the SEC review. BancBoston Robertson Stephens' Powers believes any cut in earnings resulting from a write-off reduction will be less than the company's worst-case scenario of a quarterly reduction of 2 cents to 3 cents a share for five to seven years. Powers called the SEC review a "nonevent" that the company should be able to counter through improved efficiencies, and he is maintaining his strong buy rating.
Jefferies & Co. analyst Bruce D. Smith reiterated his buy rating for Wednesday despite the SEC news, saying investors will focus on earnings excluding amortization costs going forward. He raised his 12- to 18-month price target to $100.
But Adams Harkness analyst Kevin Wagner said the SEC scrutiny of Network Associates was one of the factors that contributed to the Adams Harkness rating downgrade Tuesday to market performer from accumulate.
Wagner said a reduction in in-process R&D writeoffs could exceed 2 cents to 3 cents a share, and it will be difficult for the company to make up the loss partly due to increased competition.
"Our point was clearly Network Associates has gone on acquisition binge," increasing its exposure to an SEC crackdown on in-process R&D writeoffs, Wagner said. - Peter Loftus; 201-938-5099.
(END) DOW JONES NEWS 01-06-99 01:33 PM
=Network Assoc Stk -2: Drop Comes Despite Co.'s Upbeat View By Peter Loftus
NEW YORK (Dow Jones)--Shares of Network Associates Inc. (NETA) were off more than 5% Wednesday on concerns that a pending Securities and Exchange Commission inquiry into the company's acquisition-related accounting methods would reduce future earnings, analysts said.
But Network Associates said it would take steps to offset any earnings reduction resulting from an SEC review. Chairman and Chief Executive Bill Larson also said he was comfortable with analysts' 1999 earnings expectations of $2.13 a share.
The Scottsdale, Ariz., supplier of network security and management software said Wednesday morning it received an SEC comment letter indicating the commission would review about $220 million in writeoffs for in-process research and development in connection with the company's 1998 acquisitions.
The SEC recently issued new guidelines for determining in-process R&D writeoffs. In many cases, analysts said, the guidelines are expected to reduce the size of such writeoffs, thus increasing amortization costs and reducing future earnings.
While Network Associates also said Wednesday morning it expects to report fourth-quarter results beating analysts' estimates, analysts said the SEC disclosure overshadowed the positive news.
"Any time Wall Street hears the SEC is reviewing a company, they react negatively," said BancBoston Robertson Stephens Inc. analyst John F. Powers.
Network Associates' Larson said his company was not the only software supplier to face SEC scrutiny of in-process R&D writeoffs. Fourth-quarter results were strong, he said, and the company could improve operational efficiencies to make up for any lost earnings from a reduction in writeoffs.
Network Associates recently traded at 56 13/16, down 3 1/8, or 5.2%, on volume of 9.5 million shares, compared with a daily average of 2.5 million.
(MORE) DOW JONES NEWS 01-06-99 12:03 PM |
