Here is a summary of the key research report from the Bancboston Robbie Stephens analyst who led to the carnage.
NETA: LOW FIRST QUARTER VISIBILITY; DOWNGRADING TO BUY March 18, 1999
SYMBOL(S): NETA
ANALYST(S): POWERS, JOHN
RATING: BUY
Synopsis:
The following synopsis is qualified in its entirety by the more detailed information contained in the full research report, including the discussion of certain risks associated with an investment in this security contained in "Investment Risks."
Research dated prior to September 1, 1998 was prepared by an entity that was acquired by BancBoston Robertson Stephens Inc.
Key Points:
Downgrading NETA to BUY. We believe business through February was on track, but that through the middle of the all important third month of the quarter, the closure rate is lagging. The greater risk in the quarter may be reflected in a marked increase in Days Sales Outstanding (DSOs), or even reported total revenues lower than our estimate of $285 million. Currently, we believe the typical quarter is 25%, 25%, 50% on a monthly progression.
SEC concerns are overblown, in our view. Our concern for the company's first quarter results stems not from any SEC issues, but from a general slowdown in the deal closure rate. Given the company is in the process of rearchitecting its new fully-integrated product line, customers could be postponing purchases to wait for the new product suites in Q2 and Q3. We do not sense any Y2K related secular slowdown.
Summary and valuation. At its current price of $35.06, Network Associates is trading at a P/E of 16.4x our expected 1999 EPS estimate of $2.14 and at 4.0x expected 1999 revenues. Given our uncertainty about the current quarter, we are downgrading the stock to BUY. |
