Novell: The voice of network experience

Posted Jun 7th 2007 1:05PM by Larry Schutts
Filed under: Earnings Reports, Microsoft (MSFT), Dell (DELL), Hewlett-Packard (HPQ), Intel (INTC), International Business Machines (IBM), Oracle Corp (ORCL), Novell Inc (NOVL), Technical Analysis

When it comes to creating effective network software, experience is the key. There is an outfit in Waltham, Massachusetts that shapes up pretty good that way. It has been in business for nearly a quarter of a century and serves more than 50,000 customers.

Novell Inc. (NASDAQ: NOVL) is engaged in the development, implementation and support of mixed source and open source business software. The firm's flagship NetWare operating system integrates corporate networks, connecting servers with PCs, storage systems and printers. Novell also provides network management software, collaborative tools, directory services products, a version of the Linux operating system and IT consulting services. Strategic partners include Dell (NASDAQ: DELL), Hewlett-Packard (NYSE: HPQ), IBM (NYSE: IBM), Intel (NASDAQ: INTC), Oracle (NASDAQ: ORCL) and Microsoft (NASDAQ: MSFT).

The company pleased investors last week, when it reported Q2 EPS of three cents and revenues of $239.0 million. Analysts had been looking for a penny and $234.8 million. The CEO cited the impact of cost control measures and strength in the firm's Linux and Identity businesses for success. Management also guided FY07 revenues to $925-$955 ($953.50M consensus). NOVL shares popped into a bullish "pennant" consolidation pattern on the news. Prices frequently exit pennants moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.

Brokers recommend the issue with three "strong buys," two "buys," seven "holds" and two "sells." Analysts expect an 80% growth rate, through the next year. The NOVL Price to Sales ratio (2.97), Price to Book ratio (2.50), Price to Free Cash Flow ratio (6.93) and EPS Growth rate (200.00%) compare favorably with industry, sector and S&P 500 averages.

Institutional investors hold about 75% of the outstanding shares. The stock is one of those used to calculate the S&P 500 Index. Over the past 52 weeks, it has traded between $5.70 and $8.25. A stop-loss of $7.10 looks good here.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.

Tags: DELL, fundamental analysis, FundamentalAnalysis, HPQ, IBM, INTC, momentum, MSFT, Novell, NOVL, ORCL, pennant, technical analysis, TechnicalAnalysis