Intel

(INTC) - Get Report

recently announced that it was buying

McAfee

(MFE)

for $7.68 billion in cash. After the announcement, McAfeeâ¿¿s stock price shot up from around $30 to $47. The Trefis price estimate for McAfeeâ¿¿s stock is around $32, while the Intel deal values McAfee at around $48 a share.

Based on McAfee's fundamentals, we think Intel overpaid. However, we could be proved wrong if McAfee manages to dramatically boost its shares of the corporate and consumer security software markets over the next few years. Our analysis follows below.

Business market

McAfee offers a range of security applications for businesses, including anti-virus, anti-spyware and anti-spam software, data encryption and authentication services, and mobile phone security products.

Security Software for Businesses constitutes around 34% of the $32 Trefis price estimate for McAfeeâ¿¿s stock. McAfeeâ¿¿s share of this market grew from 11.2% in 2006 to around 14.7% in 2009. Although McAfee faces stiff competition from

Symantec

(SYMC) - Get Report

in the business security market, we expect its share to grow modestly over the next few years, reaching 15.4% by the end of the Trefis forecast period. Here's why:

1. McAfee is moving aggressively to expand the range of software that it hosts and delivers to customers over the Internet. The market for hosted software (also known as software-as-a-service, or SaaS) has been growing at an annual rate of 30% over the last few years, or three to four times faster than the market for shrink-wrapped applications that customers load onto their own networks.

2. McAfee continues to expand its data loss prevention offerings, which is a critical area for business customers.

If McAfeeâ¿¿s share of the business security software market reaches 26% by 2016, instead of the 15.4% that we currently forecast, there could be a 25% upside to the $32 Trefis price estimate for McAfeeâ¿¿s stock.

You can drag the trend-line in the chart below to create your own business security market share estimate for McAfee and see how it impacts the company's stock price.

Consumer market

McAfee sells several consumer applications designed to protect users from malware, spam and phishing attacks. Consumer Antivirus Software constitutes around 32% of the $32 Trefis price estimate for McAfeeâ¿¿s stock. McAfeeâ¿¿s share of this market grew from 16.5% in 2006 to around 20.3% in 2009.

We expect McAfee's consumer market share to reach 22.4% by the end of the Trefis forecast period, despite competition from Symantec and smaller players like CA Technologies, AVG, TrendMicro and Kaspersky Labs.

One reason for optimism is that McAfee recently extended its multi-year partnerships with Acer and Dell, the world's second- and third-largest PC manufacturers, respectively.

If Intel manages to increase McAfeeâ¿¿s consumer antivirus market share to around 36% by 2016, there could be an upside of at least 20% to the $32 Trefis price estimate for McAfeeâ¿¿s stock.

Recap:

In order to justify a stock price of $48, McAfee needs to boost its corporate security market share to 26% and its consumer security market share to 36% by 2016, the end of the Trefis forecast period.

You can see

the complete $32 Trefis price estimate for McAfeeâ¿¿s stock here.

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