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Technology Stocks : RSA Security Inc. (RSAS) -- Ignore unavailable to you. Want to Upgrade?

To: John F Beule who wrote (167)	1/21/2000 1:57:00 PM
From: Norm Demers	Respond to of 374

MORGAN STANLEY DEAN WITTER Comment Analysis of Sales/Earnings Investment summary and conclusion: EPS of $0.23 exceeded consensus of $0.22. Revenues were $62.0 million, up 32.1% year over year and 11.4% sequentially. Our estimate was for $59.5 million. The company signed a multimillion dollar deal with Compaq early in the quarter that gave it considerably more visibility than in prior quarters. The core token-related business was $43.7 million in revenues, up 28% year over year, the BSAFE/RSA business was $14.8 million, up 34.5% year over year and the Keon/RSA-PKI business was $3.5 million, up 192% year over year. We surmise that entering 1Q00, visibility is better than in prior quarters due to deferral of BSAFE/RSA contracts signing. In our view, Keon's success is the most important future event. The company reports significant customer testing of its new PKI product called Keon. This product line is now $3.5 million in the quarter. Our view is that RSA Security has a high chance of succeeding in the PKI market, not because it has first mover advantage (that would go to Entrust and Verisign), but because it has a significant installed base to upsell (that is, the tokens business related to the heritage Security Dynamics entity). Inching C2000E EPS to $0.86, towards the consensus. Revenues are now $260 million, up 19.2% annually, from our prior $235 million estimate. The most significant change we make is we assume a slower rate of decay in the growth rate of the core business, the tokens and related software. The basis for this is the observation that few alternatives exist today to enable B2B (business to business) e-commerce and ASP (application service provider) authentication. The company also suggests there are tens of millions of dollars sized deals that relate to these types of addressable markets. Thus these tokens may in fact be repurposed for a new market. The old market for these tokens is corporate remote access dial-in security, a market that is experiencing some degree of saturation. Maintaining Neutral rating. With strong recent stock performance, RSAS is fairly valued in our opinion at 88 times 2000E earnings and 12.4 times C2000E revenues. In the near- to mid-term, we expect the company's growth rate is in the 20 percent annual range. We believe the company has the opportunity to beat estimates and is probably being conservative in its guidance. But, we believe the key to callibrating the degree of conservatism is when does the Keon product line accelerate. Alex BrownBased on the 2001 estimates the stock is presently trading at roughly 9x 2001 sales and 63x earnings. We believe this represents one of the most reasonable valuations among pure- play security providers. We continue to believe RSA is an attractive play as a key enabler for secure e-commerce, and we reiterate our STRONG BUY investment rating.