Stocks: (SUNW)(HPQ)(DELL)(IBM)
Sun Microsystems has had a resurrection of sorts. But, it still has a long, long way to go.
The company’s stock has popped from $3.64 last November to $5.50, right around its 52-week high. The 51% jump in less than a year is probably not justified.
Sun’s purchase of See Beyond and StorageTek has helped it keep its revenue moving up year-over-year, but the topline improvement was not organic. It was purchased. Over the last four sequential quarter, Sun has shown very little growth with revenue averaging about $3.3 billion. Operating losses have improved as the company fired thousand of employees.
Although several brokerages including Morgan Stanley and Lehman have upgraded Sun, Thomson/First Call shows a mean price target among ten analysts surveyed of $4.32, well below the current price. Morningstar has a "fair estimate value" of $3.50 on Sun.
SUNW has still not reversed the opinion among a numer of skeptics that it will never be able to take enough share from servier giants like IBM, Dell, and Hewlett-Packard to move the needle.
Sun’s new Niagara processor has gotten good reviews, but whether that will translate into a lot of sales remains to be seen.
Morningstar gives some indication of why its price target is so low: Sun’s higher priced workstations are not a good fit in an IT climate where less expensive machines are the trend.
Enough said.
Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.
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