VMWare Inc. (NYSE: VMW) saw a spectacular initial public offering back in the middle of 2007, but has since retreated to somewhat reasonable levels. The stock traded as high as $125 per share in late October before retreating to its current levels around $80 per share. It now appears that the company has attracted some analysts who believe the investment looks conservative today.

William Blair & Company initiated research coverage on VMWare with a Market Perform rating and an Aggressive Growth company profile. Analyst Laura Lederman estimated 2007 pro forma EPS at $0.80, $1.14 for 2008, and $1.60 for 2009. These numbers put the company’s current P/E ratio at around 100x on a trailing 12-month basis, 70x forward 2008, and 50x forward 2009. These ratios make the stock look almost conservative trading at these levels considering it is the market leader in a fast-growing industry.

The analyst noted, “We have covered the software space for more than 20 years and rarely have we found a solution with a cost-savings proposition as compelling as virtualization software. In fact, many software products do not deliver a positive quantifiable return on investment, but VMware’s virtualization software can greatly lower IT costs and increase hardware utilization (from 10%-15% to roughly 80%) by aggregating servers into shared pools of IT capacity. This tremendous savings in hardware and management resources explains why the server virtualization market and, in particular, VMware are growing so quickly.”

Lazard Capital also initiated coverage on the company with a Buy rating earlier this month. Currently, the average price target from analysts on Wall Street stands at around $105 per share. In the end, server virtualization is a quickly growing industry that is expected to grow to $10 billion by 2011. VMWare sits at the head of this new trend and stands to benefit as a market leader. Combined, these factors make VMW a stock worth watching!

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Radyne Corporation (NDAQ: RADN) shares moved up yesterday after an activist hedge fund called on the company to hire an investment banking firm to explore strategic alternatives. San Diego-based Monarch Activist Partners, which didn’t disclose its investment stake, sent a letter to the company calling on the board to consider strategic changes and perhaps an outright sale of the company. Shareholders are hoping that Radyne takes the advice and unlocks shareholder value.

“Monarch has given ample time to Radyne’s management and has refrained from applying public pressure to highlight the disappointing job performance,” said Sohail Malad, Managing Partner of Monarch. “If management is unable to lay out a strategic plan that allows investors to quantify what the current course will deliver, than it is our belief that the public market should determine the value of the Radyne businesses.”

Monarch believes that Radyne has potential but will never fully realize the potential as an independent public company on the current course. There is a growing gap between the value of the company as a standalone entity versus the value of the enterprise in a sale transaction. Moreover, the activist hedge fund reported that potential strategic acquirers have already expressed interest in that the company should take seriously. At a minimum, Monarch believes that the board should conduct a marketing test in a publicly disclosed environment so all would-be suitors can express interest in the company.

Radyne currently has a market capitalization of around $160 million trading at just 13.8 times earnings, suggesting that the company is undervalued. However, many are questioning the timing and motives behind this request. The M&A market isn’t exactly the strongest right now amid a difficult credit environment, while Monarch holds a very small stake in the company. Regardless, this is definitely a situation that is worth watching closely over the next few months!

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Yahoo! Inc. (NDAQ: YHOO) shareholders are beginning to show signs of frustration as the company’s shares continue to sink off their highs of $34 last year. The web portal’s management has communicated a reorganization strategy, but has yet to produce results showing that a tangible turnaround is under way. Shareholders are hoping that the web giant will report decent third quarter results and take more aggressive actions to turn the company around.

Cheap Yahoo shares have also reportedly caught the eye of private equity firms interested in purchasing the company. A market capitalization of just $29 billion trading at just 42 times earnings puts it substantially below its peers despite its market-leading position in search and e-mail. There are no formal discussions currently taking place, but private equity firms are reportedly aggressively reaching out since its stock began trading below $24 per share.

There are also some concerns inside Yahoo that a strategic buyer like AOL, AT&T, CBS, Microsoft, or even News Corp., who have all shown interest in the past, may want to make a move at these depressed levels. The interest exists because Yahoo has an execution problem, not a structural problem. There are a lot of smart investors and companies that think they better execute and take advantage of the company’s leading search and e-mail services.

There is word on the street the Yahoo is planning to implement more dramatic measures in order to speed up a turnaround. These measures reportedly include layoffs numbering in the hundreds of employees in order to refocus its efforts on a smaller number of key areas. Currently, Yahoo employs around 14,000 people and said it plans to invest in some areas, reduce emphasis in others, and eliminate some areas of the business that don’t support the company’s priorities.

In the end, as management continues to fail to implement a turnaround and the stock continues to decline, the likelihood of a serious offer for Yahoo increases. There is a lot of money sitting in the hands of private equity firms, who are confident that they could orchestrate a faster turnaround. Meanwhile, strategic suitors are always looking to expand their offerings and shares in Yahoo are clearly on sale. Combined, these factors make YHOO a stock worth watching!

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