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McAfee Suyang “ sean ” hong , yanyan xu. Presented on 11/10/2009. Deliverable Outline. Company Overview Company Strategy Macro-economic Outlook Industry Analysis Competitors Valuation Client Portfolio Recommendation. Company Overview. History Current Position. History. - PowerPoint PPT Presentation
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MCAFEESUYANG “SEAN” HONG, YANYAN XU
Presented on 11/10/2009
I. Company OverviewII. Company StrategyIII. Macro-economic OutlookIV. Industry AnalysisV. CompetitorsVI. ValuationVII. Client PortfolioVIII. Recommendation
Deliverable Outline2
I. History
II. Current Position
Company Overview3
History4
1992- Incorporated, under the ticker “MCAF”
1997- Merged with Network associates, under the ticker
“NETA”
1999- McAfee.com initial public offering, under the ticker
“MFE”
2002- Company streamlined to security focus
2004- First stage of reformation was completed
2004 is the turning point when company showed strong profitability in focused area.
Current Position5
Largest company dedicated to security technology
Employee: 5,600
Newly added to S&P 500
35 billion asset and 1.6 billion revenue in 2008
Global expansion to Europe, Asia, Latin-America
McAfee is the leader in the market
Acquisition Strategy6
Roll-up company that grows by acquisition
Focus on single market- security
Most recent acquisitions:
MX Logic $140 million
Solidcore Systems $33 million
Endeavor Security $3 million
McAfee is currently enjoying the benefit from its acquisitions
I. Business Model
II. Products
Company Strategy7
Business Model8
The 3-5-3 model describes products, geography and customer
Products9
System Security Offerings
PC protection
Network Security Offerings
Internet protection
Vulnerability and Risk Management Offerings
Company security protection
Comprehensive product mix that dominate the market
Geography10
Focus on North America and Europe market and explore the emerging market
I. Industry OverviewII. Five-forces Analysis
Industry Analysis11
Industry overview12
Adverse effects: Economic downturn alters consumption Limit to credit-impairs acquisition strategy Foreign exchange exposure
Favorable effects: Threat of terrorism stimulates the market Stable growth in Internet access Government recognition and procurement
Impact on adverse side is systematic while that on favorable is industry specific
Five-forces Analysis13
Suppliers play more strongly with less threat from substitution and buyers
Strength and Weakness14
Opportunities and Threats15
I. Income AnalysisII. LeverageIII. Efficiency
Financial Position16
Income Analysis17
High gross margin, high SG&A cost/ Stable performance through out recent years
Efficiency19
Increasing utilization of assets
I. Competitors Profile
II. Comparable Analysis
Competitors Analysis20
Competitors Profile21
International Business Machine Integration of IT consulting
Microsoft Internet-PC market giant
Symantec Corporation Pure-player competitor
Other medium-small size company Converted to strategic alliance (SIA)
Successfully mitigate the challenge from giants and small competitors
Competitors Profile22
International Business Machine Computer technology and IT consulting company Market Cap: 165.51B Employees: 398,000
Microsoft Computer and internet technology company Market Cap: 257.41 Employees: 93,000
Big companies that have related sector or department in security industry
Competitors Profile23
Symantec Corporation Security software company Market Cap: 14.38 B Employees: 17,500
Leading position overtaken this year by McAfee
Security Innovation Alliance24
Security Innovation Alliance Technology partnering program to accelerate product
development Different level of Alliance
Strategic Alliance Downstream of the value chain Most recent alliance: Lenovo, Verizon and Adobe
McAfee uses alliance to antagonize giants in the market
Profitability25
Medium performance in profitability and potential in cutting SG&A expense
Liquidity26
Low debt obligation reduces future risk
Efficiency27
High efficiency and utilization of assets
I. Historical Highlights
II. Management
III. Assumptions
IV. WACC
V. DCF
VI. Multiples
Valuation29
Historical Highlights30
Huge turnaround since 2004: divested non-core business, focused on acquisition, and restructured
Management31
Forecasts about what they plan to see in 2009 with respect to the income statement Give forecasts in “absolutes”
Clear explanation of what impacted each line of last three years of line items
Core strategy Strong history of acquisitions and strong forecasts of future
acquisitions and partnership deals Roll up, fragmented industry
Management clearly defines historical impacts and identifies key drivers for the future
Assumptions32
Costs grow at a slower rate due to business model, every additional sale of software or service above fixed cost lacks substantial variable cost and goes straight to the bottom line
Revenue Increase customer base Strengthening relationships with strategic partners Increased revenue from upgrade initiatives Increased revenue from network security solutions, higher
hardware content means more upfront revenue realization
Cost (Absolute) Grow from McAfee Consulting Services Increased demand from subscription based products Impact of acquisitions (Amortization)
Assumptions33
Strong revenue growth, slow reduction of growth in COGS, increasing growth in R&D and amortization
WACC34
Operating leverage is high, financial leverage is low
WACC - Bloomberg35
Lower WACC explained by significantly lower beta (weekly, 2 year)
DCF36
Current price is around $42
Goal Post
Bloomberg
Multiples37
Intrinsic value is around $36 to $45
I. Diversification
II. Projected position in portfolio
Client Portfolio38
Diversification39
Low correlation with current holdings
Projected Position40
If 300 Shares purchased, it would represent around 3% of the total portfolio value
Recommendation41
Pros DCF shows fairly valued
Current price of $42 Intrinsic value of $36 to $45
Management’s new business model has turned the company around since 2004
Current projections for the future are strong Largest dedicated security
Cons 39 PE Multiple
Market has high expectations Will they meet and beat expectations? One bad year can mean huge reduction in sales price
Add to Watchlist. If price pulls back, look to purchase 300 shares