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Technology Stocks : Santa Cruz Operation (SCOC) Going Up?
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To: TESTU Yvan who wrote (287)4/25/1998 3:15:00 PM
From: Wil Faller  Read Replies (1) of 656
 
4 reasons to own SCO (SCOC)

SCO (SCOC) stock summary

1. Latest quarter earnings

a. SCO (SCOC) beat earnings estimates by 50%.
b. Profit margins are growing since costs are under control

2. Alliances for UnixWare 7

They have agreements for a huge R&D investment from other companies for '98 and '99. IDC estimates that the ivestment is between 50 and 70 million dollars. This is a whole quarters revenue.

3. Fair Value For Stock Price

For a hi-tech company the multiple on earnings is typically related to the growth rate among other things.

Currently analysts are looking for SCO (SCOC) to perform as follows.

Growth 30%
Earnings Growth ('98 to '99) 50%
Forward Earnings ('99) $0.45

Given this growth rate, for a software company a PE of 30 is conservative.

But for fun, lets say 30 times $0.45. That still is a stock price of $13.50.

This stock is undervalued.

Take into account that a lot of software companies with slower growth rates are selling at more than 30 times earnings, and you get $15 or higher as the fair value for this stock.

4. New products just starting to take off, should result in increasing revenues and earnings.

a. Tarantella
b. UnixWare 7

Estimates are that SCO has 80% of the market for Unix operating systems that run on Intel chips. With the new Pentium II at 400 MHz, and Merced down the road, Unix based Intel Servers are going to be the corporate choice based on cost and performance. These are high performance servers because of Unix and the dramatic increase in the Intel chip speeds. This market is going to grow rapidly, and SCO is the best positioned company to take advantage of that growth.
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