Macquarie Research Upgrades Websense (WBSN) to Outperform; Valuation Call

November 11, 2009 6:50 AM EST

Macquarie Research upgrades Websense (Nasdaq: WBSN) to Outperform, target to $19 from $18.

Macquarie analyst says, "We are upgrading shares of WBSN to Outperform based on valuation, improving demand trends, as well as what we believe is an overreaction to the company's recent financial restatement. We believe the recent financial restatement which resulted in reduced revenue, EPS, and guidance is inconsequential. Given the company's billings driven subscription model, we have always valued the business on cashflow and viewed net billings as the best indicator of in-period performance...We are encouraged by signs of stabilization and incremental improvement in execution...Given the growth opportunities inherent in longer-duration, bigger-ticket appliance and gateway sales, we view implied 4Q billings guidance for 26–37% QoQ growth as prudently conservative compared to the 28–43% historical range experienced by the company...At yesterday's closing price of US$15.73, we believe the shares trade at a discount to the financial value of the company's recurring revenue stream alone, which we estimate is worth US$18 per share.

"We are slightly raising our 2010 billings expectation to US$366m from US$363m, non-GAAP EPS to US$1.29 from US$1.28, and operating cashflow to US$93m from US$88m."

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