Over the next week 24/7 Wall St. will set mid-year price targets (June, 30, 2007) for the sixty most widely traded stocks. These targets will be based on past price performance, industry activity, forward projections of financial performance, outside analyst opinions, and research conducted for doing past articles on these firms. The price targets assume flat markets over the next six months. In other words, if the Nasdaq moved up 25% between now and mid-year, the target share price targets would probably be too low. If the market moved down by 20%, they would probably be too high
Sun Microsystems (SUNW). A number of investors have become convinced that Sun is probably out of the woods. With the stock moving from just below $4 to $5.65 over the last year, they have voted with their pocket books. It was a bad bet.
Sun has cut costs, by perhaps too much. The company’s revenue has grown, but much of this is from its purchases of SeeBeyond and Storage Technology.
Sun has gained some market share in its key server market. But, larger companies in this part of the industry, including IBM and Dell, may be willing to live with lower margins to keep share. And, Sun cannot afford to play that game.
To help jump start interest in the software that runs on Sun’s servers and to improve total cost to customer, the company has turned to Linux open source products. Linux depends on a large community of programmers around the world that do not have the clear direction that a corporation my need to keep on the cutting edge with its products. Ther are also question about whether Linux intellectual property infringes on patents from companies like Microsoft.
Sun’s growth does not appear to be reaching beyond the revenue it bought through acquistions. If that becomes more apparent in the next quarter or two, the stock will give up most of its gains.
Factors that could move the stock above forecast: Sun has had recent market share gains in the server segment. If it can continue to take away from Dell, IBM, and HP, the market should have a positive reaction.
Factorss that could push the stock below forecast: The market expect Sun to start making money soon. If its show loses in the next quarter, investors may well lose patience.
Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.
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