Magic 25
Jul 02, 1999
Novell's Shares Trade up on Bright Outlook
Shares of Novell are showing renewed strength on the heels of some promising new product
introductions. The company announced the release of ZENworks 2, an enhanced directory
based management solution. ZENworks makes a network manager's job easier by providing
better control over data and usage of networks.
ZENworks 2 will be able to take inventory of hardware and software on the network and will allow for better remote
management of desktops. The product will also include anti-virus software from Network Associates (NASDAQ:NETA -
news) and Y2K diagnostic and repair tools. At $59 per user, it should sell strongly into the corporate market.
This product is part of a larger effort by the development team at Novell. Investors are expecting further product introductions
throughout the year that will compliment the ZENworks line. Novell hopes to expand its footprint in directory based solutions,
and to widen its lead over rival Microsoft (NASDAQ:MSFT - news) . Strong acceptance of these types of products will help
to propel the shares to the next level. Stay tuned for further releases. It looks to be a busy second half of the year for Novell.
Future price gains are predicated on the company's ability to deliver the "10 ZENS." Wall Street would be content if Novell
delivered five or seven different lines over the course of the year. Most earnings models do not yet reflect much upside
associated with the new products. these opportunities.
One example of a product that is likely to be discussed is ICHAIN. Later in the summer we expect to hear more about
ICHAIN, which uses the directory to "police" and maintain borders between the outside world and functions performed
internally. It could be used to manage customer accounts or serve as a link frora company and its suppliers.
We also expect the company to announce further inroads into the caching market, or relationships on NDS 8, a product that
allows for the development of an Internet Directory. Regardless, Preferred Capital Markets analyst, Joel Achramowicz thinks
that, "Novell is solidly positioned in the directory market." Mr. Achramowicz points out that many investors have been worried
about Microsoft's (NASDAQ:MSFT - news) response to Novell's positioning in the directory market. But he says, "while
Microsoft may dominate operating systems, they are unlikely to capture the lead from Novell in the directory market. Novell
remains the leading, quality, scalable solution." Further, we would point out that as the Internet grows, so will Novell's
opportunities.
Another bit of good news. Novell's Group Wise product line attracted one million new customers through March 1999. These
numbers were confirmed through International Data Corporation (IDC). Novell's NDS is gaining rapid acceptance in the
marketplace. Moreover, we would expect further announcements with this line as worldwide usage of the Internet grows.
Afterall, companies are routinely looking for a more efficient, more secure way in which to communicate. Group Wise now has
a user base of over 18 million customers. As a refresher, Group Wise is a system that expands e-mail by offering scheduling
and calendaring as options.
Consensus estimates are calling for the company to earn $0.14 per share for the third quarter ending July. We believe that the
company will likely meet or beat this estimate. Gruntal's Vivek Rao notes that "Wall Street will begin to converge on this growth
story and we should see an expansion in earning multiple." We couldn't agree more. Mr. Rao has a $32 price target based up a
45.7x multiple of his FY 2000 estimates of $0.70 per share.
Analyst: Glenn S. Curtis
Updated on 6/29/99 with NOVL trading at $27 Recommended 11/16/98 at $14.38
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