JPMorgan Comments on Road Trip with McAfee Management

From Analyst John Difucci:
We marketed with McAfee management recently; and while there was nothing new that would change our positive opinion of the shares, we offer the following that we believe should be of interest to investors:

• October within Plan. We believe that the prospects for MFE's business are still as strong as they were in the Sep Q. In contrast with the dire comments regarding Oct by Tech giant, CSCO, we believe that Oct came in according to plan for MFE.

• Soft Economy Is No Excuse. While MFE will experience negative FX effects to its top line, given the strengthening of the US dollar, its business does not appear to be suffering on a constant currency basis as a result of the softening world economies, as others have recently.

• MFE Consumer Well Positioned – for Good Times and Bad. MFE has access to many more subscribers than ever as a result of its significant investment in partnerships over the previous 3 Qs. In addition, we believe that a meaningful portion of MFE's consumer subscribers come through the ISP channel, which acts much like enterprise business. MFE enjoys a renewal rate well in excess of 80% for its consumer business.

• Corporate Business Momentum. MFE's successful suite approach still has room to grow, as 30-40% of its enterprise customers have a TOPS solution. In addition, its ePolicy Orchestrator, which integrates MFE's products with best-in-class offerings from others (associated with McAfee's Strategic Alliance Initiative) under a common console, continues to win favorable reviews. Maintenance for the corporate business enjoys renewal rates in excess of 90%.

• Continue to Rate MFE Overweight with a $43 Price Target; MFE is on J.P. Morgan's Top 26 SMidCap List. Our price target is based on our DCF. We continue to believe a base value for MFE should be about $38, consisting of about $31 for the corporate maintenance stream alone (at 5.1x EV/Mtn) and about $7 for the consumer business even if the cash flow from this business declines at a rate of 10% a year. MFE was placed on the JP Morgan Top 26 SMid Cap list on November 3, 2008.