Analysis of NETA and Strategy by: DocOhio
Friend read off some reports regarding NETA, took notes and below is recent information from many reports since the sell-off. I believe that NETA should move to at least 40 in April.
Three major catalysts:
1. Resolution of SEC review by end of March which should move the stock upwards.
2. April 5th meeting with Analysts to introduce new products.
3. Earnings April 19th.
I believe the current price is a gift. My personal stratgey is purchasing Jan 30 leaps to offer insurance in case stock indeed does not move upwards in the short term. I believe the chances are excellent to see at least 35 by end of March and 40 plus in April. Jan 30 Leaps are about $8.00. Will Neta reach 38 by the end of the month? I would think so. If it retraces up to at least 60 by the end of the year, the leaps would be worth at least 22. 8 to 22 is a nice return. If NETA reaches 40 in April, I expect the leaps to trade at 17 as the delta will increase on the premium. 8 to 17 within 6 weeks or so is a nice return. Jan 30 leaps offers breathing room and IMO a conservative play.
Over 90% of outstanding shares of NETA are held by institutions, and I believe they will begin buying again as we confront the upcoming catalyts.
Again, the market was weak, and the NAS was hammered again, yet NETA held its own. I think NETA moving to its 52 week low is remote. Volume has decreased substantially, I believe the serious selling has now abated.
Here is a fundamentally sound company that has been unfairly sold off. This presents a rare opportunity to profit from this either in the short-term or long-term. Buy on panic...sell on fear. Its time to buy...we have a gift.
Summary of recent reports on NETA:
Network Associates' stock is off due to concerns that the company could miss the upcoming quarter. Analysts have talked to the company and while it is in its quiet period, management contends nothing has changed in the company's current business.
Management maintains that the quarter is still very feasible with business at the end of the quarter important, but not exceedingly so. We expect revenues in the range of $286-$287 million with EPS of $0.48. We understand that there seems
to be more risk this quarter than in previous quarters, but still expect the Company to meet expectations.
On April 5th, the company will be introducing two major new products, Magic Total Service Desk and Active Security which demonstrates the company is on track to provide its integrated
security and management platforms. While there is a concern that the new products could delay near-term purchases, the company is managing the transition.
We believe DSOs will climb approximately five
to six days to the mid-90s and to stabilize in this range. We do not find this disconcerting due to oversea sales where closure is longer.
SEC Resolution - We believe that a resolution to the SEC review should occur by the end of March for their 10K filing.
The outcome should be the reallocation of certain one-time charges as operating expenses and the reversal of a
significant portion of the $220 million in-process R&D charges. We do not expect this to impact 4Q 1998 or our 1999 estimates, which we expect will include the non-cash amortization charges.
Y2K is our major concern -
We believe production software (software used to change or upgrade a business process) companies like SAP and Oracle will be more impacted than maintenance software companies (software used to optimize performance of a computer or network) like NETA. We are watching this situation very closely. With that said, if this occurs, it should only be a two to three quarter.
While there is some risk (Q1, Y2K) to the story, we believe at
current valuation, upside to the stock significantly outweighs
downside. The company is enjoying a very strong product cycle
over the next 6-9 months and NETA should move to 60 to 70 by year's end.
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