Baird Lowers Novell to Neutral

Analyst Steven Ashley thinks it may have trouble sustaining present valuation

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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