Bear Stearns Upgrades Sun Micro to Peer Perform

Analyst Andrew Neff is encouraged by the server manufacturer's execution on cash generation and revenue growth

Bear Stearns upgraded server-manufacturer Sun Microsystems (SUNW ) to peer perform from underperform.

Analyst Andrew Neff notes while Sun's revenue outlook remains lackluster, he's encouraged by the software company's execution on cost/expense and generating cash. He notes that the company has potential for operational leverage.

Neff sees Sun, the No. 3 maker of corporate servers, as a turnaround situation, not a growth story, since the company has shown progress returning to breakeven, cash generation, and revenue growth. While he doesn't see momentum yet, it's outlook is not getting worse.

He notes that the non-GAAP breakeven first quarter, vs. his 5-cent loss and the consensus 3-cent loss estimates, were driven by better gross margins and expenses. He narrowed the a 9-cent 2005 (Jun) GAAP loss estimate to a 1-cent loss and set a $4 fair value.