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ANALYST WATCH: Lycos, Adobe finding fans on Wall Street

Analysts have been pleasantly surprised by the decent gains made by search engine sites, particularly Yahoo!, in the past month. But looking into the crystal ball, some pundits believe Lycos might be the best play of them all.

Yahoo! (Nasdaq: YHOO) is still the shining star of the sector, but it's trading at $164 a share after its recent run-up. It's probably still a fine investment, but that price-to-earnings ratio of 399, even at this early stage, is sure to scare away those with weak stomachs.

Somehow, it would appear that Lycos has gotten lost in the shuffle.

In its latest quarter, Lycos turned a slight profit, earning $600,000, or 1 cent a share, on sales of $45.1 million.

After the proposed merger with USA Networks fell through, the stock plummeted from a post-split adjusted high of 72 11/16 to the mid-30s. In July, the stock split 2-for-1.

However, the stock is destined to rise in the coming months. As the lone independent portal of note still standing, Lycos finds itself in the unique position of being able to pick and choose from what's sure to be a long list of potential suitors.

Lycos recently spent $78.3 million to acquire stock-quote provider and has made some serious investments into the booming Asian market.

Last quarter, it reported an average of 70 million page views per day and a registered user base of 32.4 million. Not Yahoo!-like numbers, but still considerable, especially for media companies desperate to establish an online presence.

At $44 a share, Lycos seems like a steal.

"In our view, Lycos continues to expand its network, adding value that has not yet been reflected in the stock," said Keith Benjamin, an analyst at BancBoston Robertson Stephens, in a research note. "We see multiple positive catalysts that can compound to help the stock."

Adding fuel to the fire, Lycos will once again become eligible for pooling transactions at the beginning of October, a key selling point to a company that might hesitate to pay a huge premium for it.

Earlier this week, Lycos and Singapore Telecommunications Ltd. announced a $50 million joint venture targeting the largely untapped Asian Internet market. The venture will launch local language Web sites in more than 10 countries, beginning later this year with China, Singapore, Taiwan, Hong Kong, Malaysia and India.

Twenty-one of the 23 analysts following the stock maintain either a "buy" or "strong buy" recommendation.

Adobe Systems back on top

After Thursday's stellar third-quarter earnings report, Adobe investors and analysts were all smiles.

The San Jose, Calif. company raked in $57.2 million, or 80 cents a share, on record sales of $261 million.

First Call consensus expected Adobe to earn 74 cents a share in the quarter.

On Friday, Advest Inc. and J.P. Morgan both upgraded the stock as it surged up to 106 1/16, a few ticks from its 52-week high.

Company officials announced a 2-for-1 stock split will be paid in the form of a dividend to shareholders of record on Oct. 4. It also declared a cash dividend of 5 cents a share.

But only a year ago, this stock was trading at 25 1/16 and was reeling from a third-quarter profit warning. It trimmed 10 percent of its workforce and blamed "adverse economic conditions" in Japan for its disappointing results.

How things have changed.

CEO John Warnock said Adobe expects to see revenue growth of at least 20 percent in fiscal 2000 and an annual operating margin of 30 percent.

J.P. Morgan's Andrew Wilcox bumped Adobe's price target from $95 a share to $130 and raised his fourth-quarter estimate from 78 cents a share to 83 cents a share.