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Updated from 9:38 a.m. EST

Network Associates


shares soared after the security software maker posted fourth-quarter results late Tuesday that beat top- and bottom-line estimates.

Shares of Network Associates were recently up $1.60, or 9.9%, to $17.71.

"The metrics were solid across the board, including growth in their major business lines and a demonstrated ability to leverage its cost structure while improving their balance sheet position," Janney Montgomery Scott analyst Joel Fishbein wrote in a note Wednesday. He reiterated his buy rating, noting that the stock before Wednesday's climb was trading at a sizable discount to other security stocks, with a price-to-earnings ratio of 23 times projected 2004 earnings and 18 times 2005 earnings. (Fishbein has a buy rating on Network Associates, and his firm has done banking with the company.)

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But Piper Jaffray analyst Gene Munster noted that the consumer segment was particularly strong for Network Associates, whose strength previously has come from enterprise sales. "Accelerating consumer growth represents a shift in the Network Associates business, in our view, and we do not yet know whether investors will reward consumer revenues with the valuation multiples that similar enterprise results would have received," he wrote. (Munster has a market perform rating on Network Associates, and his firm hasn't done banking with the company.)

Santa Clara, Calif.-based Network Associates gained 642,000 net new subscribers in the fourth quarter, while consumer sales reached $61 million, beating Munster's estimate by $21 million. Retail sales grew 33% while the McAfee online consumer service revenue grew 51% and bookings grew 115% year over year.

Overall, Network Associates reported net income of $41.3 million on a generally accepted accounting principles basis, or 24 cents a share, in the fourth quarter, compared with a net loss of $11.2 million, or 7 cents a share, in the same period a year earlier.

Network Associates reported pro forma net income of $47 million, or 26 cents a share, in the fourth quarter, a nickel ahead of consensus estimates but down from $65.6 million, or 35 cents a share, a year earlier.

Revenue barely moved up to $268.9 million from $269.5 million a year earlier.

Reflecting the sale of its Magic business, Network Associates expects first-quarter revenue to be between $208 million and $212 million and pro forma earnings of 10 cents a share, assuming revenue falls in the midpoint of that range. Analyst estimates target revenue at $223.62 and earnings at 12 cents a share, according to Multex. It was not immediately clear whether those estimates included the company's Magic business.

For 2004, Network Associates said it expects revenue to range from $915 million to $945 million and earnings to range between 67 cents and 72 cents a share. Analysts were forecasting revenue at $985.5 million and earnings at 68 cents a share.