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Congrats to subscribers who have held on to ActivIdentity (ACTI). We recommended the stock back in March 2006, at $4.37, and after a lot of volatility were finally rewarded today with the announcement of a huge HSPD-12 government contract. Specifically, the company announced a major contract win with the U.S. Department of Defense (DoD), U.S. Army and U.S. Air Force for ACTI's smart card desktop client software to enable their move to next- generation HSPD-12 certified Common Access Cards for 3.5 million military personnel and contractors around the world.

Jason Hart, CEO of ActivIdentity, had this say: "The issuance of HSPD-12 enabled smart cards throughout the government is a tremendous first step toward the security and efficiency goals set by the President. We are now working with many agencies to help them begin the process of putting the infrastructure and applications in place to allow the full potential of interoperability and advanced authentication."

Interestingly, the Stanford Group Company values the HSPD-12 market at approximately $1.3 billion over five years, with the bulk of the revenue flowing in fiscal years 2007-2009 (Identity Solutions Industry Outlook, July 2006). So clearly, ACTI has a significant business opportunity as HSPD-12 rolls out.

As we have mentioned previously, if ActivIdentity can continue to execute on its revenue growth and cost-cutting initiatives, the company will, as per management´s guidance, turn a profit in 2007. We think, as noted in the past, that if these forecasts prove accurate, that the stock can trade at 2.5X to 3X revenue, a still substantial discount to the valuation accorded to RSA (a competitor to ACTI) in the recent EMC acquisition.

Assuming a $60 million revenue run rate in 2007, and $135 million in cash (no debt), that implies a price target for ACTI of between $6.25 and and $7 per share over the next 12 months.

Disclosure: We first recommended ActivIdentity (ACTI) at $4.37, and still hold a position in the stock.

ACTI 1-yr chart:

ACTI chart

Source: ActivIdentity Wins Big, As Predicted