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Analyst reports: Veritas gets a round of applause

Storage-management company Veritas Software receives a series of bullish reports after company executives host an optimistic mid-quarter conference call with analysts.

Storage-management company Veritas Software received a series of bullish reports Tuesday, one day after company executives hosted an optimistic mid-quarter conference call with analysts.

Among the highlights of the call, Veritas executives indicated that the amount of finalized business deals and those in the pipeline would remain strong throughout the fourth quarter--particularly in the company's core domains of financial, telecommunications and manufacturing software.

Mountain View, Calif.-based Veritas is one of the largest providers of enterprise storage-management software, including data protection and high-performance data access software.

During the conference call Monday, Veritas chief financial officer Ken Lonchar also increased Veritas' 2001 earnings guidance to 83 cents or 84 cents a share, up from analysts' current estimates of about 78 cents.

On Nov. 21, shareholders of Seagate and Veritas approved the complex acquisition of Seagate, and the deal was finalized Wednesday.

Seagate stockholders will receive approximately $8.15 in cash and 0.45 of a share of Veritas stock for every one share of Seagate stock. The precise transaction details will be finalized within about a week, executives said during the call.

The Seagate deal lowers Veritas' tax burden and reduces Veritas' outstanding shares by 18.7 million, which is expected to increase calendar-year 2001 earnings per share by 4 percent.

"We...believe the accretive nature of the transaction, coupled with a lowered tax rate and a (fourth fiscal 2000 quarter) that is tracing extremely well, will attract investors' attention to the software leader of storage management," wrote Merrill Lynch analysts Mark Fernandes and Mark Martinho.

In a twist on the uncertainties surrounding the presidential election, which has sapped enthusiasm from Veritas stock and the broader markets in recent weeks, the analysts titled their Tuesday report "The Vote is Over--Taxes Lowered." The Merrill analysts, who reiterated an intermediate-term "accumulate" and long-term "buy," increased their calendar-year 2001 earnings per share estimate from 83 cents to 87 cents. They maintained a revenue forecast of $1.77 billion.

Other analysts were downright gushing when they wrote about Veritas in research reports issued Tuesday morning.

Goldman Sachs analysts Neil Herman and Amy Feng called the company "one of the best performers in our universe" and reiterated their top ("buy") rating.

Last week, the duo raised its earnings-per-share estimate for fiscal year 2001 from 80 cents to 83 cents. On Wednesday, a day after the Seagate deal closed, it also maintained its 12-month price target of $160 per share. The duo's forecast for the fourth quarter, which ends in December, is top-line revenue of $345 million and operating earnings per share of 17 cents.

Investment firms Thomas Weisel Partners, Deutsche Banc Alex Brown, Lehman Brothers and Needham also reiterated "buy" ratings.

Wit SoundView reiterated a "strong buy" and a 12-month price target of $165. Prudential Volpe reiterated a "strong buy" and a 12-month price target of $175 per share. If Veritas hit the Prudential target, it would be a 65 percent increase from the current price of $106. The stock, which has traded in a 52-week range between $46.05 and $174, is down 24.84 percent since the beginning of the month.

Goldman Sachs analyst Anne Meisner called Veritas software the "killer app" for storage area networks. A SAN is a dedicated, high-speed network similar to a local area network (LAN). A SAN consists of a cluster of storage devices accessible to multiple servers and managed as a single resource.

Meisner's only concern was Veritas' ability to recruit talent--a ubiquitous worry for all companies in the Silicon Valley and the broader tech sector.

"We believe the greatest risk facing the company is its ongoing ability to hire skilled professionals to support continued robust growth," Meisner wrote in a research note that kept Veritas on its "recommended" list.

On the hiring front, however, Veritas recently scored something of a coup. The company announced earlier this month that Gary Bloom, an Oracle executive who was widely believed to be on a short list of possible successors to CEO Larry Ellison, will become president and chief executive of Veritas.