ISS Quarterly Results Overshadowed by Takeover Talk

Internet Security Systems (ISS) issued its second-quarter financial results last night, delivering a mixed bag to market watchers and shareholders.

On one hand, neither earnings nor revenues were spectacular, with reduced profit barely meeting analysts’ expectations and revenue growing just five percent over what was generated in the comparable period last  year. Nonetheless, revenue from two product lines on which the company is depending for future growth was encouraging.

As Tom Noonan, ISS’s CEO and president noted, revenue from the Proventia IPS products grew 23 percent on last year’s numbers, and the Proventia Unified Threat Management (UTM) product line grew 55 percent annually.

The company offered third-quarter and year-end guidance that tracked close to the expectations of market analysts, though somewhat on the low end of forecasts.

But it is takeover talk, not the company’s financial results, that has thrust ISS into the spotlight today. Analysts from UBS, Jefferies & Co., and RBC Capital markets are speculating today on the likelihood of ISS being acquired.

Katherine Egbert, the analyst at Jefferies and Co., opines that CA, Symantec, and IBM are the most likely candidates to buy ISS, whereas RBC Capital Markets’ Robert Breza sees International Business Machines Corp. as the leading acquisition candidate. For what it’s worth, we side with RBC’s Breza on this one.

The most likely candidate to acquire is IBM, for the reasons discussed here in an earlier post.

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