There is good news despite our overly conservative concerns.  Thomson Reuters has non-GAAP estimates of $1.51 EPS and $363.3 million in revenues for 2011 and $1.66 EPS and $378.6 million in revenues for 2012.  At $22.89 today, Websense trades with forward multiples as follows:

• 2011 is 15-times earnings and 2.56-times revenues
• 2012 is 13.8-times earnings and 2.45-times revenues

Aggressive growth investors who think that Websense could be worth far more to a strategic buyer can easily arg
ue that this company is cheap and that it could fetch a higher price.  Conservative investors who would look at Websense solely from the eyes of a financial buyer (private equity) have plenty of ammunition to argue that the stock is expensive.  Our take is a mix of the above. Websense is expensive from a financial buyer’s point of view but the company would be an incredible bolt-on acquisition that could instantly be worth far more for a solid strategic buyer.

We’d probably be a bit surprised if Websense gets gobbled up by a private equity buyer.  If so, then it means that the EBITDA and ‘hidden value’ calculators came out in a manner which we do not evaluate companies on.  But… With Dell Inc. (NASDAQ: DELL) and Hewlett-Packard Co. (NYSE: HPQ) having almost an insatiable desire to acquire services and product suites, with Intel Corporation (NASDAQ: INTC) having Pac-Manned McAfee, and with the myriad of security solutions that are greatly needed today, there is no reason to not believe that Websense will garner interest from a strategic buyer.

The market cap today is roughly $930 million.  A $1 billion acquisition will not even take the $22.89 price above the 52-week high as its 52-week range is $17.03 to $27.96.  Websense shares were in the low-$30s on a split-adjusted basis at its peak back in 2005 and 2006.

If you were to hold a gun on us to pick an ultimate value for a buyout, it seems that there is probably more than the 7.5% implied upside to the $1 billion mark and an implied $24.60 share price from a strategic buyer.  A strategic acquisition of Websense makes plenty of sense.  Does that mean it can fetch north of $30.00?  That is another issue and an issue we will leave up to the potential buyers out there.

JON C. OGG