Jefferies notes that Investor confusion over Cogent's (NASDAQ:COGT) ability to handle various types of biometric information (company can handle fingerprint, palm and facial) coupled with spurious conclusions over pricing and competition trends have knocked COGT flat on its back. They believe 2007 could provide positive catalysts. Conversations with the government and the company suggest that Cogent is well positioned to win its fair share of upcoming awards, including the FBI next-generation identification system when it is awarded in the fourth quarter, in firm's view.
Firm's recent checks with DoJ suggest Cogent's technology is well suited for FBI's next-generation identification, in their view. Key requirements include speed and accuracy, multimodal biometric fusion (finger, palm, and facial), flexibility to adapt to changing requirements, ability to scale significantly, and interoperability with other government systems such as IDENT (a Cogent system). The current IAFIS system processes between 50,000 and 80,000 fingerprint submissions per day, a transaction volume that likely increase significantly as the civil portion of the system ramps-up. Furthermore, the government expects the size of the database to increase dramatically due to future retentions of civil submissions, a positive for Cogent. The government will at least consider foreign ownership, control, or influence, also a positive for Cogent. The FBI timeline is to have an RFP out in March, proposals submitted during the summer, and an award in September or October. Interestingly, firm believes the government plans only limited evaluations with some testing. Similar to US-VISIT, the award is likely made to a large systems integrator although the government reserves the right to specify an AFIS vendor.
Firm has Buy rating and $15 target for the stock.
Notablecalls: The stock has always been valued based on promise rather than performance. While all that Jefferies does is adding more promise, it just might do the trick with the stock beaten down and having sizeable short interest.