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Baird Lowers Novell to Neutral

Robert W. Baird downgraded Novell (NOVL) to neutral from outperform, after the software company on Thursday reported financial results.

Novell said it had 4 cents earnings per share (EPS) and expects to have 2 to 3 cents EPS in the second quarter.

Analyst Steven Ashley says the first quarter results were in line, but the second quarter guidance was a bit below the consensus estimate of 4 cents EPS. Ashley says the company faced challenges in the first quarter, and its Legacy Platform revenue fell 11% year over year after having risen 3% year over year in the fourth quarter. The company's SUSE Linux revenue fell sequentially to $13 million from $14 million, while the company's to-be-divested Celerant business had a 27% year over year revenue drop. He cut his 20 cents fiscal year 2006 (ending October) EPS estimate to 18 cents. While the stock has been a solid performer over the past six months, aided in part by takeover talk, he thinks it may have trouble sustaining present valuation.

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