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Strategies & Market Trends : LastShadow's Position Trading -- Ignore unavailable to you. Want to Upgrade?

To: John J H Kim who wrote (11433)	3/25/1999 4:12:00 PM
From: AlienTech	Read Replies (1) \| Respond to of 43080

Kevin Prigel Last week, as I enjoyed a must needed week of rest on the beach, one of my favorite holdings tumbled from the heights. It was not until Friday afternoon that I learned of Network Associates sudden demise, a point at which I had a good deal of time to ponder the new found evidence against buying the stock. After 48 hours of researching and pondering I reached a conclusion: "Same ol', same ol'." The "news" that was released on Network Associates last week is nothing new. Anyone that pulled their head out of the sand would realize that much of it is the same story that short sellers have been singing for months. The first point is the rise in days sales outstanding (this is a measure of how long it takes the company to collect sales made on credit). Nothing new here. Network Associates has been telling us about it all along. Check out last quarter's 10Q. The company anticipates it right there. Why is it happening though? The reasons are perfectly reasonable. Network Associates acquired Dr. Solomon's which with its overseas sales had a much longer collection period. Secondly, the company's sales mix is becoming more international (very favorable for the long term). Those new international sales take longer to collect, fine with me if it means more revenues. Finally, the companies enterprise products are catching on. Those are sold with licenses that extend the collection period. Hardly a reason to sell the stock is it? The second reason that sellers cited for dumping NETA is weaker revenues anticipated in the quarter. Have they not been listening to every other PC and software vendor? Enterprises are scaling back spending in the current period to prepare for Y2K. This is not a symptom of Network Associate's business, its industry wide! Once the Y2K scare has passed Network Associates stellar revenue growth will continue and accelerate. Finally, there is the (old news) SEC investigation. This is the same investigation that looked to be over a few weeks ago and quickly vaulted the stock to above $50. Guess what? It's a non-issue. AOL got assaulted by the SEC a few years back. Would you rather have been long or short that stock after the investigation? Network Associates now provides investors with a compelling opportunity to buy 30%+ revenue growth and 35%+ earnings growth at 18 times last years earnings! With the NASDAQ 100 trading at near 100 times earnings the stock looks like a buy to me. We all know by now that BBRS "analyst" John Powers downgraded NETA last week (3/18), giving the shorts the momentum to complete what they had started with the first news of the SEC letter. I decided to look at what Mr. Powers had said about NETA prior to downgrading, since he had it at a Strong Buy. I could NOT believe what I read. The following is from his report of 2/25/99 (just 3 weeks ago!) previewing NETA's presentation at the BBRS Tech Conference. "Network Associates' business fundamentals remain on track for Q1:99. Two months into Q1:99, we remain confident that Network Associates' business fundamentals remain on track. We are confident with the company's ability to meet or slightly exceed our Q1:99 revenue estimate of $285 million and our EPS estimate of $0.48." "Summary and valuation. At its current price of $49.00, Network Associates is trading at a P/E of 22.9x our expected 1999 EPS estimate of $2.14 and at 5.7x expected 1999 revenues. We think the valuation is compelling with or without a reduction to EPS from a changed accounting treatment for purchased acquisitions. We think investors should begin to focus on CY 2000 possibilities, which for fiscal year 2000, we would expect to see EPS around $2.75 and revenue of $1.65 billion or better. With an estimated $800 million in recurring revenue expected next year, the company's visibility remains remarkably clear. As the quality of the financial results continues to grow, and with a fundamental repositioning of the product offerings, we would expect Network Associates to trade at 30x forward year multiple and we reiterate our Strong Buy rating." Now we know from Merrill's comments that the company indicated that they had not guided any analyst to move. And of course in downgrading NETA, Powers expressed concern about 1Q visibility, not the SEC, but didn't change his estimates. It just seems so weird, the timing of his comments (during the quiet period) and the disparity with what he said 3 weeks ago, the lack of a EPS change. Almost like he wanted to send it down.