McAfee May Have To Fight 'Em Off

A Meaningful Discount
As the world's No. 2 maker of anti-virus, anti-spam, and anti-spyware network software, McAfee (MFE ) (MFE) might also need to develop an anti-takeover shield. Chief Financial Officer Eric F. Brown told a conference on IT services in New York on Nov. 7 that McAfee wasn't for sale. But that didn't stop the buzz. "It is a potential acquisition candidate due to its cheap valuation, strong free cash-flow growth, and recent rollout of new products that are being well received," says Richard Parrower, managing director at investment firm J. & W. Seligman, which owns shares. Suitors, he adds, "could be Cisco (CSCO ), Hewlett-Packard (HPQ ), or Dell (DELL )." The stock climbed from 19 in mid-August to 29 on Dec. 6. Walter Pritchard of Cowen (COWN ), who tags the stock "outperform," says McAfee "remains an attractive take-out candidate." He values McAfee in a deal in the low 40s. At 9 times his estimated 2007 free cash flow, it is "trading at a meaningful discount to its peers," he notes, which trade at 11 to 16 times. Pritchard forecasts profits of $1.38 a share in 2006 and $1.46 in 2007.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

By Gene G. Marcial

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