Shares of Internet security company McAfee Inc. (NYSE: MFE) have been tumbling after the company reported yesterday after the market closed that its first-quarter profit slipped 27%, hurt by higher expenses related to product development and marketing. The world's second-largest security software maker also slashed its full year earnings guidance, prompting investors to pull the stock down in morning trading.
McAfee said its profit dropped during the first quarter to $31.6 million, or 19 cents per share, compared with $43.4 million, or 27 cents per share reported in the same period a year ago. Excluding one-time items, the company's earnings would have come at 43 cents per share, missing analysts' predictions for a profit of 45 cents per share in the quarter.
The second-biggest maker of security software did post a respectable growth of 17% for its first-quarter revenue which jumped to $370 million. This was above analysts' predictions for quarterly revenue of $352 million, according to Reuters Estimates. However, McAfee's operating costs during this period also increased to $226 million.
MOST NOTEWORTHY: Research in Motion, Virgin Mobile, VMWare, and McAfee were today's noteworthy initiations.
Research in Motion (NASDAQ:RIMM) was initiated with an Overweight by Thomas Weisel, which thinks the company has one of the strongest growth profiles among large-cap tech stocks.
Virgin Mobile (NYSE:VM) was initated with an Overweight by Thomas Weisel, which cited the company's strong global brand and low cost base.
Pacific Crest initiated VMWare (NYSE:VMW) with a Sector Perform based on the company's thin float and competitive risks.
McAfee (NYSE:MFE) was reinstated with a Buy by Deutsche Bank, which believes the company is one of the best positioned security vendors due to its comprehensive security platform.
OTHER INITIATIONS:
Thomas Weisel initiated Palm (NASDAQ:PALM) with a Market Weight rating.
Today's news that two software giants SAP (NYSE: SAP) and McAfee (NYSE: MFE) are expanding their R&D centers in Israel, points to the continued superiority of Israeli technology. Coupled with news that foreign investment in Israel jumped to $1.25 billion for October -- the biggest number since March -- it shows that international investors are still intrigued by Israeli ingenuity.
SAP increasing its Israeli exposure may be an indication that it may make an acquisition. Retalix (NASDAQ: RTLX) has been mentioned in the past as a potential SAP target. Retalix automates and synchronizes retail, distribution and supply chain operations for stores, headquarters and warehouses, and has made strong inroads into China.
While Israeli Hi-tech M&A has sagged this year, I would look to a revival in early '08.
Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC and Senior Editor of IsraelNewsletter.com. Author is long RTLX. He holds no position in any other stock mentioned as of 11/14/07.
So far this year, McAfee, Inc. (NYSE: MFE) has put together a strong turnaround. Now, the company is ramping its mergers and acquisitions (M&A) efforts.
The deal is also a part of McAfee's attempt for "triple play protection," which involves security for PCs, the Web, and mobile devices.
In today's trading, McAfee's stock is up about 1.5% to $40.51. Actually, today the stock hit a 52-week high.
To get more perspective on things, I talked to Nick Selby, who is the Research Director and Enterprise Security Practice Director at the 451 Group.
According to him:
"Hacker Safe is a more solid and relevant product than was SiteAdvisor in that it addresses issues to both consumers and the e-business websites they buy from. This is a good, incrementally valuable tool in McAfee's quiver, with the added bonus of helping bring the McAfee name back to the fore of the consumer market."
Also visit DealProfiles.com to check out other recent M&A deals.
Almost everyone who has surfed the Internet understands the potential for assault from hackers, spammers and other cyber villains. Among the best known defenders of a computer system's integrity is an outfit headquartered in Santa Clara, California.
McAfee (NYSE: MFE) provides computer security solutions for home and business systems. Offerings include anti-virus and anti-spyware services; encryption and backup applications; and programs used to stop unwanted e-mail. The company also provides consulting, support, and training services and has strategic alliances with such industry specialists as Cisco Systems (NASDAQ: CSCO), IBM (NYSE: IBM) and Microsoft (NASDAQ: MSFT). Earlier in the week, it announced the $350 million acquisition of SafeBoot, a developer of security software for laptops, smartphones, and other mobile devices.
MOST NOTEWORTHY: The process control sector, R.H. Donnelley, Vonage, Coca-Cola Enterprises and Transocean were today's noteworthy downgrades:
Baird reduced estimates across the board in the process control sector due to lower expectations for North American industrial and residential construction. The firm downgraded Roper Industries (NYSE: ROP), Regal-Beloit Corp (NYSE: RBC) and Baldor Electric (NYSE: BEZ) to Neutral from Outperform and AO Smith Corporation (NYSE: AOS) to Underperform from Neutral.
Goldman downgraded shares of R.H. Donnelley Corporation (NYSE: RHD) to Neutral from Buy after the company updated its 2007 guidance to reflect deteriorating trends in local advertising.
Vonage Holdings Corp (NYSE: VG) was downgraded to Sell from Hold at Soleil due to liquidity concerns.
Coca-Cola Enterprises (NYSE: CCE) was downgraded to Hold from Buy at Deutsche Bank on valuation and mixed near-term trends.
Transocean Inc (NYSE: RIG) was downgraded to Hold from Buy at Gabelli. Even though the deepwater market continues to be strong, the firm is concerned regarding the continuing weakness in the jackup market as well as the limited upside potential due to the company's ships being in use through 2009.
Deutsche Bank believes new product leverage can bring upside to consensus operating margin expectations at Microsoft Corporation (NASDAQ: MSFT) and they view shares as attractively valued given its growth profile. The firm started shares with a Buy rating and $33 target.
Keybanc initiated shares of Salesforce.com (NYSE: CRM) with a Hold rating and sees slowing growth rates for revenue and net subscriber additions throughout the remainder of FY08 and beyond and thinks investor expectations are too high.
Keybanc also started shares of Taleo Corporation (NASDAQ: TLEO) with a Buy rating and $27 target, as it is well-positioned to gain market share in the Human Capital Management space.
Thomas Weisel believes McAfee Inc (NYSE: MFE) will benefit from PC market growth, enhanced awareness of the company's brand, and its renewed focus on product development for the midmarket corporate segment, and started shares with a Market Weight rating and $37 target.
OTHER INITIATIONS:
Lululemon Athletica (NASDAQ: LULU) was started at William Blair with an Outperform rating and at UBS with a Neutral rating and $37 target.
Merrill Lynch initiated shares of Zoltek Companies Inc (NASDAQ: ZOLT) with a Buy rating and $50 target.
MOST NOTEWORTHY: VMware (VMW), Bed, Bath & Beyond (BBBY), Williams-Sonoma (WSM), Landstar System (LSTR) and Acadia Pharmaceuticals (ACAD) were the noteworthy initiations:
Robert W. Baird initiated coverage on VMware (NYSE: VMW) with a Neutral rating citing valuation.
Citigroup started Bed Bath & Beyond (NASDAQ: BBBY) with a Hold rating, and cited the increasing competitive environment, slowing square footage growth and the weak housing market.
Citigroup started Williams-Sonoma (NYSE: WSM) with a Sell rating and said the company has an inventory glut that could lead to markdown risk, there is raw material price inflation, and the weak housing market remains a material risk.
Wachovia is cautious on Landstar System's (NASDAQ: LSTR) near-term growth rates and difficult end markets, starting shares with a Market Perform rating.
Deutsche is positive on the potential of Acadia Pharmaceutical's (NASDAQ: ACAD) ACP-103 in schizophrenia, starting shares with a Buy rating...
MOST NOTEWORTHY: McAfee (MFE), Wabtec Corp (WAB), Pacific Sunwear (PSUN), Aeropostale (ARO) and Amdocs (DOX) were today's noteworthy initiations:
McAfee Inc (NYSE: MFE) was initiated with an Accumulate rating at ThinkEquity, as the firm is positive on the company's competitive positioning in security, refocused business and streamlined operations.
JP Morgan initiated shares of Wabtec Corp (NYSE: WAB) with an Overweight rating, as the firm believes Wabtec's strong market presence should support 22% and 12% EPS growth in 2007 and 2008.
Nollenberger feels that the core PacSun concept is challenged to re-establish a niche in the competitive teen marketplace, and initiated shares of Pacific Sunwear (NASDAQ: PSUN) with a Neutral rating and $22 target.
Nollenberger also initiated shares of Aeropostale (NYSE: AEO) with a Buy rating and $49 target and recommends buying the stock into back to school.
Cantor initiated shares of Amdocs (NYSE: DOX) with a Hold rating and $37 target on valuation...
Symantec Corp. (NASDAQ: SYMC) opened at $20.09. So far today the stock has hit a low of $19.40 and a high of $20.10. As of 1 p.m., SYMC is trading at 19.48, down 0.53 (-2.65%).
After hitting a one year high of $22.19 in October, the stock has recently struggled against resistance at $20. Though the company announced a $2 billion buyback plan today, analysts remain skeptical. A Morgan Stanley analyst says he sees little upside for SYMC, and an RBC analyst stated that rival McAfee (NYSE: MFE) continues to take away market share from SYMC. Recent technical indicators have been bullish with slight deterioration, while S&P gives SYMC a neutral 3 STARS (out of 5) hold rating.
For a bearish hedged play on this stock, I would consider an October bear-call credit spread above the $22.50 range. SYMC hasn't been above 22.50 at all in the past year and has shown resistance around $21.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, he neither owns nor controls positions in SYMC or MFE.
Senior Citigroup Inc (NYSE: C) executives are afraid the company could become a target of activist hedge funds seeking to break the company up, reported the Financial Times.
According to the Financial Times, a number of companies involved in options backdating scandals, including McAfee Incorporated (NYSE: MFE) and Novell Inc (NASDAQ: NOVL), could be vulnerable to takeover by activist investors.
OTHER PAPERS:
The New York Times "Dealbook" reported that Porsche has bid $48.9B for Volkswagen AG (OTC: VLKAY), and the bid will run for four weeks starting today.
The News Journal reported that AstraZeneca (NYSE: AZN) has received a subpoena from the Delaware Attorney General, which seeks documents about the company's contracts with Delaware hospitals.
Like many other tech companies, McAfee, Inc. (NYSE: MFE) got stung from the options-backdating virus. The company actually also has a history of run-ins with regulators, as well as turmoil in the boardroom.
Now, the company has hired a new chief: David DeWalt.
This is a great choice, actually. DeWalt was EMC Corporation's (NYSE: EMC) head of customer operations. Before this, he was the CEO of Documentum, a leader in content management software (EMC bought the company in October 2003).
Fundamentally, McAfee is a strong company. But, with someone of the stature of DeWalt, the company can start rebuilding its credibility. Hey, after all, McAfee is a security company, right?
Although, the big play may be positioning the company for a sale. The good news is that the security software space is undergoing significant consolidation. Even Cisco Systems, Inc. (Nasdaq: CSCO) is buying security companies.
But don't expect a deal soon. DeWalt will need to spend time cleaning things up.
Tom Taulli is the author of various books, including the Complete M&A Handbook andt the EDGAR-Online Guide to Decoding Financial Statements.
MOST NOTEWORTHY: NetFlix (NFLX) and McAfee (MFE) were the most notable initiations today:
First Albany cited valuation and churn trends for their Neutral rating on Netflix Inc. (NASDAQ:NFLX);
Citigroup initiated McAfee Inc. (NYSE:MFE) with a Neutral, expecting growth to be impacted by competitive pressures.
OTHER INITIATIONS:
Brightpoint Inc. (NASDAQ:CELL) was initiated with a Neutral rating and $14 target based on valuation.
W.W. Grainger Inc. (NYSE:GWW) was initiated with a Market Perform rating at Wachovia; while being positive on the stock, a slowing U.S. economy and potentially aggressive 2007 revenue targets makes Wachovia less positive.
High-end retailers Coach Inc. (NYSE:COH) and Tiffany & Co. (NYSE:TIF) were initiated at Oppenheimer; Coach with a Buy and $50 target and Tiffany with a Neutral rating.
It seems that no matter where I travel on the Internet these days, I run into another new warning about some evil Internet-borne threat that wants to invade my computer, rifle my bank records or expose my personal life in order to wreak havoc and inject trouble while accomplishing a complete withdrawal of my life savings. Thanks to a worthwhile investment in McAfee (NYSE:MFE) products, I have been safe, at least until now. But it seems that the times are changing in the arena of Internet crime. Actually, it's probably safer for me and other PC users now. We're not the desired targets any more. Now it seems that the criminals are more interested in going after the big guys. It's that old rule about deep pockets -- the more you have, the more someone else wants to get it.
Luckily enough, I came across a systems security suite that appear to have it all covered. Kaseya, McAfee and Singlefin, a St. Bernard Company (OTCBB:SBSW), have come together under the umbrella of Secure My Company, a monthly subscription service providing systems protection from the inside out. Given the fact that an emerging tactical attack on business is being mounted from the user side of business equipment, it is very important that companies monitor the dissemination of internal data to exterior destinations. Secure My Company has chosen their three focus providers to create a synergistic defense against data intrusions and theft from outside a company and from within.
Internet security is one game where you must be at least one step ahead of the competition, especially when you consider that the competition wants to bleed your funds or to just plain ruin you. We're not talking about business competition. We're talking about those individuals and organizations that operate strictly in defiance of the rules. They are criminals who will stop at nothing to gain access into what you have worked so hard to build. If you are personally in charge of your system or network security then you'd better be up to date. If someone else handles those details for you, then make sure that they're on the ball. Today's computer criminals aren't the hackers and virus writers that we've all become used to. We're dealing against a smooth, savvy and intelligent bunch. They only way they will respect you is if you demand that they will and that means keeping them locked out, for good.
Here are some highlights from this past week's earnings coverage from BloggingStocks:
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It seems that no matter where I travel on the Internet these days, I run into 
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Before the bell: AMZN, F, DOW, DAI, QCOM, MMM, LLY, COST ...
