Secure Computing (SCUR) A Reader Writes "...can you help me take a look at SCUR?"
Hello Friends! Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice. As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisors prior to making any investment decisions based on information on this website.

I had a nice comment from a Xanga fan, JaQo, who wrote

"...can you help me take a look at SCUR.. let me know what you think.. thanks

First of all, thanks so much for commenting on the blog. Please remember that I cannot tell whether a stock will be rising or falling (!), but can tell you how it fits into my perspective, my strategy here on Stock Picks.

Ironically, it is interesting that you ask about Secure Computing (SCUR). You may not realize this, but I did review Secure Computing (SCUR) on Stock Picks Bob's Advice on December 30, 2003, a little over two years ago (!) when it was trading at $16.78. SCUR closed on 2/3/06 at $13.29, down $(3.49) or (20.8)% since posting. It has not bee a superstar on my blog :(. By the way, I do not own any shares nor do I have any options on this company.

Let's take another look at the company and see what we find.

First of all, according to the Yahoo "Profile" on Secure Computing, the company

"...develops network security solutions that enable organizations to exchange critical information with their customers, partners, and employees. Its product lines include Sidewinder G2 security appliances for application security; SafeWord products that enable organizations to remote access to network resources and verify the identity of remote users; Web filtering products to monitor the Internet use with control over outbound Web access; and embedded firewall, which offers a security solution to manage access control inside the corporate perimeter firewall."

And what about the latest quarterly results? On February 2, 2006, SCUR reported 4th quarter 2005 results. Revenue for the quarter came in at $30.2 million, an 18% increase over the $25.5 million in revenue the prior year and a sequential increase of 11% over the $27.2 million in the previous quarter. Net income for the quarter came in at $6.6 million, or $.17/diluted share, up strongly from the $4.5 million or $.12/diluted share in the year ago same quarter. This certainly was a strong quarter.

However, the company is apparently merging with CyberGuard, which seems to be having some dilutive effects on upcoming earnings results. I suspect that this portion of the earnings report is what is keeping a "damper" on the market response for the stock. Within this report is the first quarter 2006 guidance, where revenues are indeed expected to climb sharply to $45 million. However, fully diluted GAAP eanings/share are expected to be only $.01/share, assuming a fully-diluted 60 million shares (up from about 36 million currently). Even "Non-GAAP" fully diluted pro forma eps works out to be $.13/share, which would also be down from the current quarter just reported. It may, imho, take a couple of quarters for this company to get back on track in regards to earnings.

How about longer-term results? Looking at the "5-Yr Restated" financials from Morningstar.com, we can see a very pretty picture of steady revenue growth from $34.6 million in 2000 to $93.4 million in 2004 and $104.5 million in the trailing twelve months (TTM).

Earnings have also been increasing from a loss of $(.76)/share in 2000 to $.34/share in 2004, and $.52/share in the TTM.

Free cash flow has also been improving from $(1) million in 2002 to $12 million in 2004 and $21 million in the TTM.

The balance sheet as reported on Morningstar.com looks very nice with $72.6 million in cash and $35.7 million in other current assets, giving the company a current ratio of almost 3.0, given the current liabilities of only $35.2 million. Long-term liabilities stand at a small $8.7 million.

However, all of this appears to be changing to the significant acquisition of CyberGuard.

What about some numbers on this stock? Looking at the numbers from Yahoo "Key Statistics" on Secure Computing, we find that the market cap is a small-cap level $490.84 million. The trailing p/e is 25.61, and the forward p/e (fye 31-Dec-06) is a bit nicer at 20.77. (I am not sure this accounts for the latest guidance of $.01/share for the next quarter.) The PEG is also reasonable at 1.38.

There are 36.93 million shares outstanding and 34.24 million of them that float. Currently, there are 3.94 million shares out short, representing 10.9% of the float as of 1/10/06. This works out to 10.7 trading days of volume. This by itself is bullish for the stock as a lot of shares need to be repurchased for the shorts to cover. But it will require another dose of good news to squeeze the shorts into buying.

No cash dividend and no stock splits are reported.

Finally, let's take a look at a chart on SCUR. Looking at the "Point & Figure" chart on SCUR from Stockcharts.com, we can see that the stock was moving ahead nicely between July, 2002, when the stock was as low as $2.50 to January, 2004, when the stock hit $19.50.

However, shortly after that, the stock broke through support at $13.00 to drop as low as $6.00 before once again heading higher. The stock is mildly encouraging short and long-term.

So what do I think? Well, I was a big fan of this stock back in 2003. Unfortunately, the stock never went anywhere and is currently selling at a price under what I posted it. The numbers from the latest quarter are quite strong. The Morningstar.com page looks nice. Valuation is reasonable. It is just the large acquisition of CyberGuard that appears to be having some dilutive effects on earnings short-term. At least from the estimates on earnings results. After that, if things go well, the stock may well head higher once again.

Good-luck on SCUR. Let me know what you decide to do. I am a bit bothered by the guidance for the next quarter and wouldn't be buying it myself, even though I did post it a couple of years ago.

If you have any other comments or questions, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.

Bob