Hi Steve... Upgrades and Downgrades
Someone asked about the upgrades and downgrades after the latest quraterly report, here are some reports:
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Rose Capital - Upgrade to Strong Buy from Buy
08/26/97 10:35 am... NOVELL (NOVL 10-1/8) UP 1-1/8,
SEEN HIGHER ON TALKS THAT IBM MAY BE INTERESTED IN CO...
ROSE CAPITAL SAYS RUMORS RIDICULOUS... Analyst Alexx
Knutson tells MarketScope believes there no truth in talk
about IBM acquiring NOVL... Can not imagine why NOVL would
want to be sold after it has started to come back...
Co. has sterling balance sheet which gives him confidence
that co. can afford to restructure if, when needed, still
strive... Upgraded to strong buy from buy after Friday's
stock price weakness... Notes buying stock not because he
thinks it will be taken over, but because he believes in
NOVL... Thinks over long term, NOVL could trade at
$50./J.Freund
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SP - Rating unchanged - Avoid
08/22/97 10:00 am... STILL AVOID
NOVELL (NOVL 7-5/8**)... Q3 loss $0.35 after $0.10
restructuring charge vs. year-ago EPS $0.17... Revenues
fell 75%... as expected, co. did not ship any products
during qtr. as seeks to bring inventory into line with
market demand... revenues only from license programs...
NOVL's goal is to deliver Internet/intranet software
products by summer '98... Charge involved cut in workforce,
facility consolidation... should lead to $100 mln. annual
sav- ings.. Demand flat for traditional business,
competition intense... Awaiting new Internet/intranet
products... See loss for FY 97 (Oct.). /B.Goodstadt
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Argus - Downgrade to Sell from Hold
Novell Inc (NOVL)
12 Mo. Rating: SELL
Argus Company Report
Novell makes connectivity software that is used to network computers. Its Netware program had been the standard until the onset of
Microsoft's Window NT. Novell's focus now is internet/intranet poducts.
Rating Summary 8/27/97
We lowered our rating on NOVL to SELL, from HOLD, in light of the continued decline in revenues and our skepticism over Novell's ability to remain a long-term contender in the network software market. Microsoft is expected to dominate 60% of the network server operating systems market by the year 2000. In recognition of this, Novell CEO Eric Schmidt has changed Novell's focus from a reliance on their core NetWare product line to a company that is to become a "pure Internet/Intranet software leader by summer 1998." From a valuation standpoint, Novell shares are reasonably priced but certainly not cheap. We would seek investment opportunities with other firms.
News Analysis 8/27/97
We are lowering our investment rating on the NOVL shares of Novell Incorporated to SELL, from HOLD, in light of the continued decline in revenues and our skepticism over Novell's ability to remain a long-term contender in the network software market. We will mark the Argus "Master List" entry with an "em" dash for three months, after which time we will remove Novell from our coverage.
On August 21, 1997, Novell reported a loss of $0.35 per share for the third quarter ending July 31, 1997, as compared to earnings of $0.17 per share earned in 3Q96. The loss reflects actions to reduce pipeline
inventories and a $55 million restructuring charge to cover the costs of a workforce reduction of 1,000 employees. For the first nine months of FY97, Novell lost $0.25 per share compared with a per-share gain of
$0.18 in the 1996 period.
During the third quarter, revenues dropped to $90 million, from $273 million in the second quarter. As announced on May 28, Novell took drastic steps to lower product inventories in its indirect distribution channels.Revenues remain on a downward trend since their annual peak of $2 billion in 1995. The decline in revenues is the result of a continued loss of market share to HOLD-rated Microsoft Corporation.
Microsoft is expected to dominate 60% of the network server operating systems market by the year 2000, according to the Gartner Group, beating both NetWare- and Unix-based systems. In recognition of
Microsoft's impending victory, Novell CEO Eric Schmidt has changed Novell's focus from a reliance on their core NetWare product line to a company that is to become a "pure Internet/Intranet software leader by
summer 1998."
While Mr. Schmidt may indeed be successful, we are skeptical about the chances for Novell to accomplish this mission. First, morale at Novell is likely to be low because of the second-quarter layoffs and fears that additional drastic actions will occur in the future. Novell may have a problem retaining their most talented programmers who will be tempted to join upstart software rivals, which are flush with venture-capital and bright prospects. Secondly, existing competition within the "Internet/Intranet" market is expected to be fierce as hundreds of small software firms attempt to carve out market niches among the established players that include Microsoft, Oracle, Computer Associates, IBM, and Sun Microsystems.
From a valuation standpoint, Novell shares are reasonably priced but certainly not cheap. Software firms within the enterprise and network software group trade, on average, at a market capitilization to revenues ratio of 2. Novell shares, however, trade at 3-times sales, suggesting that if more bad news emerges then the Novell shares could easily underperform the market in the future. In light of Novell's present difficulities and future prospects, we will maintain a SELL rating on Novell shares and seek investment opportunities with
other firms. At midday, SELL-rated NOVL trading at $9-1/4, down 23/32.
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Regards
Salah |
