Credit Suisse Says Odds Of Novell Buyout Are Low

Novell (NOVL) shares were modestly lower Tuesday morning ahead of the company’s fiscal third quarter earnings report, expected Wednesday. In a research note Tuesday morning, Credit Suisse’s Jason Maynard repeated his Underperform rating, asserting that he is “not expecting to see material improvements in the business.”

Maynard says the company appears committed to cutting costs, but that there isn’t enough billings momentum “to drive sustainable shareholder value.”

As for acquisitions, Maynard says that Novell is more likely to be an acquirer than to be acquired. “Given the recent turmoil in the credit markets,” he writes, “we think the chance of a private equity investor acquiring Novell is low, especially given the lack of sustainable cash flow.”

He notes that the company has over $1 billion in net cash, but says that “Novell is more likely to use that balance to make acquisitions rather than buying back stock.”

For the fiscal third quarter ended July, Maynard expects revenue of $229 million, with break-even non-GAAP EPS and cash flow of $11 million. He expects Novell to maintain its current fiscal 2007 guidance of revenue of $925 million to $955 million and operating income of zero to $10 million and “exit” operating margins of 5%-7%. Maynard sees revenue of $923 million this year and $980 million next year, with non-GAAP EPS of 4 cents this year and 17 cents next year.