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The $30B computer-security industry is booming to keep pace with the growing number of viruses and malware floating around the internet. Largely untouched by the economic downturn, two of the biggest industry players - Symantec (NASDAQ:SYMC) and McAfee (MFE) - are both on course to raise their earnings by around 15% this year. Both stocks have potential, but Barron's Jay Palmer gives the edge to McAfee.

McAfee, the smaller of the two lead players, saw its share price rise 85% over the past four years. The stock has recently stalled at a reasonably priced level in the mid-30s, but there is reason to expect upward movement soon. Its size may help it remain nimble, a critical advantage as rivals race to find more effective computer-security solutions. Even this week, McAfee announced a new technological approach to combat computer attacks as they happen, relying on a constantly updated internet list rather than static lists hosted on individual computers. McAfee says this will reduce the computer defense response "from hours or days to mere seconds."

Originally focused on selling security software to consumers, the company has expanded into the bigger, more competitive corporate IT market, and will likely get 55% of its new sales from corporations. Some important gaps remain in McAfee's corporate offerings, including firewall protection, but it has been working to build up its corporate side products through acquisitions. Encryption, an area where the company has firmly established itself, is growing rapidly, and CEO Dave DeWelt remains extremely positive about the potential of corporate business to help McAfee grow.

  • Katherine Egbert, an analyst at Jefferies & Co., expects McAfee to report better than expected earnings over the next year, pushing the stock up to $48.

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  • David Hilal, an analyst at Friedman Billings Ramsey, downgraded McAfee's rating to Underperform from Market Perform in anticipation of an industry-wide slowdown as companies cut their IT spending.
  • McAfee (MFE): Q2 EPS of $0.52 beats by $0.07. Revenue of $397M vs. $369M. Sees full-year EPS of $1.90-2.00 vs. $1.91. [PR]
Source: McAfee Battles Internet Bugs, Bigger Rivals - Barron's