W.R. Hambrecht & Co. analyst Jason Ko gave the results a “Bravo” and says that the company’s battles with stock-options accounting and financial troubles seem largely behind McAfee at this point. He’s raising his rating on the stock to Buy from Hold and thinks the shares are worth $42 in 12 months — 15% above today’s price, and representing a P/E multiple of 22x next year’s $1.90 a share.
Ko says the stock has multiple catalysts in front of it. In particular, the company’s consumer revenue, which McAfee has been working to improve, rose 19% last quarter, showing clear progress, and boding well for the future, I would suppose. In addition, share buybacks could be increased by $150 to $250 million from a current authorization of $246 million in share repurchase, writes Ko.
Ko’s estimate for fiscal 2008 is way above analysts’ average estimate of $1.37 billion at $1.42 billion. The $1.90 per share is also much higher than an average estimate of $1.76. Ko notes that revenue outside of North America soared last quarter, with Asia-Pacific sales rising 53% and Latin American revenue up 80% in the quarter.
On the other hand, Goldman Sachs analyst Sarah Friar says that most of the good news with McAfee is baked into the stock. She sees $35 fair value for the stock, a multiple of just 20x next year’s profit of $1.76, which is an upward revision from a prior $1.55 estimate. Writes Friar, “Tempering our view are still sluggish bookings, growing in the mid-single digits, which may pressure revenue growth in coming quarters. While we believe that the company’s improved sales alignment and execution could help accelerate bookings into the second half, the core antivirus market remains a very difficult one, and McAfee is going up against large vendors who tend to have more influence in the CIO’s office.”
MFE 1-yr chart: