Sun (SUNW) Spots

By Douglas A. McIntyre Published Feb 8, 8:04AM EST

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Morningstar carries a "fair value estimate" on Sun Microsystems (SUNW) of $4.50. The research firm says that investors should consider selling the stock at $5.40. That’s pretty harsh. The stock currently trades at $6.59.

Sun’s shares have risen from $3.83 in July to $6.59. The stock has not seen that level since 2002.

Earnings for the last quarter were good. Net income for the December quarter was $126 million on $3.566 billion in revenue. It’s an achievement since the company has not had any net income for a long time.

But, as the Tech Trader at Barron’s points out, the attendees at Sun’s analyst day did not walk away with smiles on their faces.The tech company says it will have 10% profit margins by 2009. It seems that did not leave much of an impression given that the stock is up 72% from its one-year low. Barron’s quotes one analyst who follows the stock: Richard Gardner, Citigroup, says, “Even on best-case fiscal year ‘09 earnings per share of $0.35-0.40, Sun shares already trade at 16-19X which seems generous given the company’s medium to long-term growth prospects.

How Sun ever got above $6 is a mystery. It has nice servers, but so do IBM (IBM), Dell (DELL), Hewlett-Packard (HPQ) and overseas companies like Hitachi. It has been flogging open source Solaris and Java for a long time. Not that anyone seems to care.

A lot of the company’s growth in the last year has come from acquisitions, and larger companies want to beat it up and take its lunch money.

Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.