Miller, The drop was due to the downgrade. The analyists Steven Frankel of Adams Harkness got a call from some insider about the SEC letter and told his clients to unload. I thought AH was a buy side analyist for one and the shorts are getting more and more desperate it seems. Here is the short side view of things. of course they tried this from 45 to 25 and most did not cover and are now sitting on some hefty losses. I do hate slimy shorts. In russia we just take em out the bac and shot them through the legs.
From iionline:
It's damage control time at Network Associates (NASDAQ: NETA).
On Wednesday, the Santa Clara, Calif. company known for its McAfee anti-virus software and its corporate network security software, said it will earn $0.47 per share for the fourth-quarter, slightly above what analysts were expecting. For the year, it estimates that it will earn $1.54 per diluted share on revenue of $972 million, up from $727 million last year.
Now, keep in mind that the company didn't have to make this announcement on Wednesday. These are preliminary numbers. In other words, the company didn't officially announce fourth-quarter and full-year results. It was just estimating these results.
Why? Because it also was announcing bad news. Network Associates said that the Securities and Exchange Commission is reviewing the company's write-down of some $220 million in R&D expenses related to two acquisitions last year-CyberMedia Inc. and Magic Solutions.
Now, these announcements also come a day after one sell-side analyst, Steven Frankel of Adams Harkness, broke from the cheerleading camp and downgraded the stock to 'market perform.'
Investors initially panicked-or correctly reacted-after the company revealed the SEC review, trading the shares down as much as 9%. However, the stock wound up closing Wednesday off just $1.75 to $58.88. On Thursday, the stock fell a little more than two points to close at $56.
What's this SEC issue? Well, basically the SEC has recently been cracking down on software companies that expense-that is take a full hit to earnings in one shot-the value of R&D expenses incurred by the acquired companies. Since this value usually represents a major part of the company's value, the SEC's position is that a lot of a software company's assets consist of incomplete R&D. So it is requiring companies to ascribe a value and then amortize it over, say, five years. The upshot: Smaller hits to earnings but on a regular basis for several years to come, resulting in lowered reported earnings.
'The whole thing ($220 million) is not in jeopardy,' explains Bob Willens, the tax and accounting specialist at Lehman Brothers. 'But it could be a substantial part.'
Frankel, the skeptical analyst, agrees. 'It could remove some upside (for Network Associates). How much? That's the big question. 'There's still confusion.'
Frankel says the company is estimating that the writeoffs will cost it two-to-three pennies per quarter. 'My math is more than that,' he says. Closer to a nickle, he figures. In other words, he thinks the hit to quarterly earnings will be double what the company is estimating. That's a big difference, especially for a stock that is already trading at around 30 times expected 1998 earnings. The more the accounting issue cuts into reported earnings, the higher the p/e goes.
And, keep in mind that this isn't the reason why Frankel downgraded the stock in the first place. Rather, he adds, 'The risk profile is changing.'
His biggest concern: Sales are what he calls 'back-loaded.' In other words, there seems to be a surge in orders at the end of each quarter. This bugs Frankel because it makes the order and revenue flow less predictable and prone to be delayed to the subsequent period. This could lead to negative earnings surprises in the future.
Meanwhile, the company spin-meisters seem to be working overtime. Besides pre-announcing good results at the same time they revealed the SEC review, all one day after the stock was downgraded, on Wednesday they issued a lengthy press release titled: 'Network Associates Products Receive Overwhelming Acclaim.' It then details over 55 technology awards and favorable product reviews the company has received from 'the computer industry's most influential publications.'
Does the work 'transparent' come to mind?
Insiders, though, aren't easily fooled. From late October through late November they were selling stock as if a virus were running through their holdings. At least seven officers and directors exercised options for 700,000 shares and then almost simultaneously sold them, for as low as $39 per share and as high as $57 per share.
Meanwhile, some smart money has been bailing out of the stock. The most high-profile: Fred Alger, who unloaded his entire 1.325 million-share stake in the third quarter.
In any other market environment, investors wouldn't be so forgiving.
Did anyone see the insider updates??
These people are dropping the stock faster than Monica... well, never mind.
Is anyone else concerned? I've watched my +98% return turn into a +70% return in the past 4 days! |
