Updates
10/26/2004 – Closing Price $25.91
On October 4th SunGard announced that it is going to spin-off its Availability Services Division. This is good news since the market has historically had a difficult time valuing a company like SunGard that has divisions that are involved in businesses that have very different costs of capital. The spin-off will allow the separate pieces of SunGard to be valued appropriately and allow the value of SunGard shares to realize the 24-month target price of $36.00. On October 20th SunGard announced strong 3rd Quarter earnings and confirmed its guidance for $1.37 - $1.42 EPS for the full year. The current target price is based on projections of $1.34 EPS for 2004. If you own SunGard continue to hold in anticipation of reaching the 24-month target price within a few months of the spin-off in early 2005. If you do not own SunGard, current prices still offer an attractive buying opportunity.

The Numbers

SunGard Data Systems	NYSE:	SDS
Computer Services	PRICE:	$22.85
	TARGET:	$36.00

Stock Data			Sales & Earnin gs	2003A	2004E	2005E
Price (8/04/2004)	$22.85		Revenue (MM)	$2,955	$3,283	$3,648
52-Week Range	$31.65 - 22.67		EBITDA (MM)	$938	$1,037	$1,172
Dividend Yield	0.0%		EPS (diluted)	$1.27	$1.34	$1.47
Capitalization			Value Measures
Shares Outstanding (MM)	285.68		Price Earnings	17.63	16.33	14.59
Market Capitalization (MM)	$6,527.8		Price/Sales	2.21	1.99	1.79
Debt/Equity	0.26		Price/Book	2.80
Projections			Growth (5 Yr.)	Historical	Projected
12-Month Price Target	$28.68		Earnings	18.2%	8.8%
24-Month Price Target	$36.00		P/E/G	0.97	1.99
Annual Total Return	25.5%

The Logic
SunGard is an attractive buying opportunity for the following reasons:

• Stock is currently 37% undervalued using conservative growth estimates
  
• Leading systems provider for financial services industry
  
• Market leader in availability services
  
• All business divisions are profitable in a time of low capital investment for business systems
  
• Long history of adapting to new technologies and deploying cost effective systems
  

The factors that separate SunGard from other firms with similar profiles are:

• Low valuation ratios in comparison to industry
  
• Potential for improvement in return ratios
  
• History of increasing shareholder value through disciplined acquisition process

Areas for Shareholder Concern:

• Consolidation in the financial services industry could shrink the size of the market for these systems
  
• A major problem with a large acquisition could depress earnings for a long period
  
• Return on equity has dropped from 15.6% to 12.8% over the past five years
  

Expectations:
The Investment Support Systems Division will continue to grow at rates above GDP growth. As the economic recovery continues there will be an increase in corporate spending for IT, and SunGard should see improved sales in this area. There will be high growth in both Availability Services and Higher Education and Public Sector Divisions. As firms look at ways to reduce various forms of business risk, SunGard will be able to employ its near monopoly in availability services to spur sales at a high rate. Higher education and public sector organizations will be forced to focus on improved efficiencies since they have lagged other areas of the economy. This will allow SunGard to rapidly grow this line of business. As increased revenues and improving margins contribute to solid earnings growth the stock price will adjust to the target price over time.

Mike Shinn for www.fizone.com

August 4, 2004