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Technology Stocks : Novell (NOVL) dirt cheap, good buy? -- Ignore unavailable to you. Want to Upgrade?

To: Elmo Gregory who wrote (21649)	4/11/1998 9:50:00 PM
From: EPS	Read Replies (1) \| Respond to of 42771

Hi Elmo, I will try to argue why it would benefit NOVL. Precisely how this will change the valuation of NOVL is hard for me to say. I can only say that it is going to be positive. Read on. Let us assume that 10 % of NOVLs strategic reserves are invested in a buy back program. That means, at current prices, 100 million dollars invested buying back 10,582,000 shares. Let us assume current return on the 1 bill is of the order of 5 to 6 % , as was suggested by Bob in a previous posting. (We could easily change this assumption since the argument here is on the order of magnitude.) Thus, NOVL would 'loose' 6% of 100,000,000, i.e. 6,000,000 dollars of revenues for forthcoming year. On the other hand the potential for NOVL to make money on its investment in itself come from: a) Miracle!: The shares of NOVL could actually increase in price! Let us assume that at the end of yr98 NOVL is @ 11, that would mean that NOVL would have a return of 11*10,582,000 -100,000,000 which is much better than the old 6,000,000 return. Discussion: is NOVL @ 11 by years end too expensive? To save myself some time let me use an argument used by a certain "COOL GUY-2000" and posted in the YAHOO thread (comments in parenthesis are mine)(I have not checked the numbers but I posted below first earning estimates just in case you want to verify the details) Here is Cool-Guy's analysis: "..I have done a my valuation homework on NOVL. Using the following 5 year assumptions: Average sales growth of 13.5% (current industry average is 15% I believe), a net profit margin of of 11.9%, a terminal value PE of 15, and a discount rate of 11.6%, I get a value of $7.82 per share. Now, remember to add $3.00 per share in cash (I almost forgot!) and I get $10.82 per share as a fair value, which is favorable compared to the closing price on Friday (a few weeks ago.) Although I have not run these numbers by IR, I think they are fairly conservative and serve as a base to make any investment decision. Using a little bit more aggressive numbers, I can get a top range value of $13.50, which would mean that NOVL is a screaming BUY. .." b) It would signal to the investment community that NOVL believes in investing in NOVL NOW. c) Prospective clients and business partners will feel better about doing business with NOVL. In other words NOVL believing in itself would help others believe in NOVL and in turn help the bottom line. d) It would give NOVL some momentum it badly needs. (Here I refer to the chart in my previous post). Regards Victor First Call Earnings Estimates for Novell Inc. Explanations of the reported fields are available First Call Consensus Earnings Estimates as of 04/04/98 Latest Price: 10.25 Industry: Software FYE: Oct 98 Consensus Recommendation: Buy Novell Inc. NASDAQ:NOVL Current Quarter Apr 98 Next Quarter Jul 98 Fiscal Year Oct 98 Fiscal Year Oct 99 Current Mean EPS 0.04 0.05 0.20 0.35 Number of Brokers 10 9 11 8 High Estimate 0.06 0.08 0.28 0.65 Low Estimate 0.02 0.02 0.13 0.13 Standard Deviation 0.01 0.02 0.05 0.14 Median 0.05 0.06 0.22 0.35 Year Ago EPS -0.04 -0.25 -0.12 0.20 Current vs. Year Ago (% change) 75% Report Date May 28 W Aug 21 W Consensus Recommendation: 2.6 1998 Price/Earnings Ratio: 41 Long Term Growth Rate: 9% Comparative Estimates and Price Ratios 1999 Price/Earnings Ratio: Estimate Trends and Revision Momentum First Call Consensus Recommendation Current Mean Recommendation 2.6 Number of Brokers 9 Industry Recommendation 2.1 Difference b/w Current and Industry 0.5 Difference b/w Current and Sector 0.5 Difference b/w Current and WSJ/DJ US Index 0.4 7-Day Ago Mean Recommendation First Call Long Term Growth Rates Next Five Years - Median 9% Number of Brokers 1 Next Five Years - High Estimate 9% Next Five Years - Low Estimate 9% Last Five Years Growth Rate Industry Growth Rate 22% Growth Rate relative to Industry 0.4 Growth Rate relative to Sector 0.5 Difference b/w Current and WSJ/DJ US Index 0.7 First Call Comparative Estimates and Price Ratios Novell Inc. NASDAQ:NOVL Current Quarter Apr 98 Next Quarter Jul 98 Fiscal Year Oct 98 Fiscal Year Oct 99 Company - NASDAQ:NOVL 0.04 0.05 0.20 0.35 Current vs. Year Ago (% change) 75% DJ Industry - Software 76.30 75.56 319.14 Current vs. Year Ago (% change) 26% 24% 23% DJ Sector - TECHNOLOGY 9.27 9.84 39.32 Current vs. Year Ago (% change) 1% 21% 10% WSJ/DJ US Index 11.47 12.15 46.86 Current vs. Year Ago (% change) 7% 12% 10% Company Industry Sector WSJ/DJ Index Price/Earnings Ratio on 1997 Calendar Year Mean 41 39 27 23 Price/Earnings Growth Ratio on 1997 Calendar Year Mean 4.56 1.82 1.53 1.81 First Call Estimate Trends and Revision Momentum Novell Inc. NASDAQ:NOVL Current Quarter Apr 98 Next Quarter Jul 98 Fiscal Year Oct 98 Fiscal Year Oct 99 Current Mean EPS 0.04 0.05 0.20 0.35 7-Day Ago Mean EPS 0.04 0.05 0.20 0.35 30-Day Ago Mean EPS 0.04 0.05 0.20 0.35 Upward Revisions Last 7 Days 0 0 0 0 Upward Revisions Last 30 Days 1 2 2 1 Downward Revisions Last 7 Days 0 0 0 0 Downward Revisions Last 30 Days 0 0 0 0