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Update on a Holding

This Software-as-a-Service name is trading higher this morning due to speculation of a strategic business deal.
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Zix (ZIXI) is trading more than 6% higher this morning, currently changing hands around $3.73. This Alert is an update on the company, and we're not making any trades for the model portfolio.

The company has achieved its average daily trading volume in the first hour of the session on the speculation that it may soon announce a strategic deal with Microsoft (MSFT) . A promotion on Zix's website suggests that customers will be able to "encrypt Microsoft Exchange" with the company's e-mail security solutions and states "more information coming soon."

We caution that it's premature to assume that those few words are worth the $16 million in market capitalization that the stock has added this morning. Even so, the company did carry a lot of momentum into 2011, and any potential partnership with Microsoft could boost Zix's organic growth in the e-mail encryption business.

In the meantime, we maintain that the stock is attractively valued at current levels, which is a 23% discount from the company's February highs. A $15 million share repurchase program could limit any potential downside in the near term.

We expect to hear more details about this potential business with Microsoft when management releases the company's first-quarter results, scheduled for April 26. We will provide readers with a full earnings preview next week and we reiterate our Two rating on Zix before the quarterly numbers.

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