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.
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