Bonum Certa Men Certa

Novell Downgraded Again

Summary: Second downgrade in less than a week

IT HAS ONLY BEEN half a week since the last Novell downgrade and here comes another.

Novell (NOVL) shares hit an air pocket this morning created by Jefferies analyst Katherine Egbert, who cut her rating on the stock to Hold from Buy. Her new price target is $4-$5, down from $7.50. Her big complaint: the company is choosing to use its large cash position to pursue acquisitions, rather than dividending it back to holders.


Novell's friend, the Var Guy, has already jumped to Novell's defence.

Sometimes, investors have the right to attack Novell. But this time around, at least one financial analyst firm seems to be beating up on Novell for a rather foolish reason. Here’s the scoop, from The VAR Guy.

First, a little background. The VAR Guy does not give investment advice. Nor is his favoring Novell over other Linux distribution providers.

[...]

And Egbert is suggesting Novell pay dividends rather than make acquisitions? Frankly, Egbert’s logic doesn’t add up. When company valuations are falling fast, that’s when you comb the market for great buying opportunities.


While it is true that Novell's recent performance leaves little room for hope, Egbert’s guess rationalises the obvious using complex explanations. But then again, this is Egbert, who not so long ago suggested that Oracle would buy Red Hat, having predicted repeatedly (since 2006) that Oracle would harm Red Hat and never apologised or retracted despite being very wrong. Egbert is always wrong about Red Hat, to whom she wishes doom and gloom. Novell, unlike Red Hat, is not in a good position, so to offer Novell shareholders predictions of disappointment is just too easy.

Analysts -- why do people listen to them anyway?



“Analysts sell out - that’s their business model… But they are very concerned that they never look like they are selling out, so that makes them very prickly to work with.”

--Microsoft, internal document [PDF]

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