Despite Sharp Jumps in Net Stocks, One Analyst Says Values Still Exist

An analyst with Jefferies & Co. names five software firms that he believes are under-valued relative to their peers.
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Yahoo! (YHOO) went up 67 points yesterday. Digital Island (ISLD) was up around 60 today. Are there any values out there? One analyst says there are a few in his coverage area. Internet Sector

index was up 13.19, or 1.3%, to 1072.06.

Richard Williams, vice president and analyst with

Jefferies & Co.

, looked at both fundamentals and technicals and thinks there are a few value-priced companies among enterprise software firms. He has singled out

BEA Systems



Systems & Computer Technology



Network Associates



Wind River Systems



HNC Software


as five companies he sees as undervalued relative to their peers. Jefferies has not done underwriting for any of the companies.

Williams says that BEA Systems, which provides the infrastructure for e-commerce transactions, has a "huge opportunity." He has a $150 price target on the stock. The company recently reorganized to better capture the opportunities presented by the Web-channel buildout, he says. It was up 4 1/16, or 3.4%, at 125 7/16 in recent trading.

Systems & Computer Technology, whose software solutions provide Web enablement for education, also is among his underpriced picks. Trading at around 15 today, Williams has a price target of $20 on the stock. He says the company is spinning off its portal,

Campus Pipeline

, into an IPO next year that has an implied value of 2 3/4 now, but could trade in the $5-to-$10 range as a public company. It was recently up 1 13/32, or 9%, at 14 15/16.

Williams claims Network Associates is "extremely cheap," with an "enormous unrecognized value." He says the company's spinoff last week of

, which provides antivirus and security for single-user PCs, was worth around $11 a share to Network Associates, but there was "a lot of confusion" about what it meant for the company. He also says the percentage of recurring revenues for Network Associates (around 25% in the current quarter) should go to 60% next year. He sees growth in the business at 25% to 30% over the next few years. Williams reiterates a buy rating on the stock today with a price target of $30, though he calculates fair value on the stock at 46 based on McAfee at around 45. Network Associates was up 5/16, or 1.4%, at 22 1/16 in recent trading, while McAfee was up 2 1/16, or 4.6%, at 47.

Wind River, a provider of software and services for the Internet, got

Justice Department

approval for the acquisition of

Integrated Systems

on Friday. Williams said Wind River, which provides operating systems for electronic devices such as refrigerators, cars and other non-PC items, is in a market that "is set to explode." It was up 3 5/8, or 9.4%, at 42 1/16 in recent trading, having made an all-time high of 42 3/4 earlier in the session.

Williams says a key to HNC Software's success could be whether spinoff



can succeed in bringing large numbers of retailers and suppliers together. Williams says there was a miscalculation of HNC's stock based on its 80% stake in Retek. He says if Retek was trading at 72, HNC should be worth 130. HNC was up 5 1/4, or 6.3%, at 89 1/8 today, while Retek was up 5 1/4, or 7%, at 79 1/2.

Of course, Williams says market conditions need to remain intact for the companies mentioned to continue to prosper. But he says there remains an "enormous opportunity of hidden potential in these companies," and the limitless prospects for the Internet could allow it to happen.

"If I'm right on the Web-channel concept, every one of these stocks will go to new highs if the underlying business is not broken," he says.

IPO Madness

Is there any reason IPO madness should not continue? Certainly not in these conditions. The latest example is


, which builds Web sites for corporations. The stock was up 58, or 223%, in recent trading.




, which measures and analyzes traffic on the Web, was up 11 3/4, or 69%, at 28 3/4.


Ben Holmes took a look at this week's offerings in an earlier