Prudential started coverage of Novell (NOVL) with underweight.
Analyst Brent Thill says Novell is betting $250 million (the total acquisition price of Linux vendors) to acquire roughly $40 million in Linus revenue, or less than 5% of Novell's total revenue stream, to help rejuvenate its $1 billion revenue base that has been stagnate for the last five years. He says integration and execution issues likely present formidable challenges.
Thill sees the potential for share price weakness following first-quarter earnings as investors recognize Novell's challenges. He set a $10 target. Thill sees 17 cents fiscal 2004 (Oct.) earnings per share, and 26 cents in fiscal 2005. Aside from these challenges, he sees an opportunity for Novell to improve its financial prospects over the next two years.