Dollars and Jens
Sunday, October 19, 2003
A Premise Short of a Full Argument
SCO Group Shares Jump on Analyst's Upbeat Comments:
The volatile shares of SCO Group Inc. jumped as much as 39% Wednesday after a brokerage analyst recommended the stock and set a price target nearly triple its closing price Tuesday.Let's review. Skiba stipulates that if SCO loses its lawsuit, its shares are worthless. He states further that he has no idea whether the suit has merit. On that basis, he declares it worth three times its then-current price. In response to this report by somebody who admits that he has no clue whether the company is worthless, the share price jumps.
Brian Skiba, software analyst at Deutsche Bank Securities, started coverage on SCO Group with a buy rating and a $45 price target. He said the Lindon, Utah, company is "a call option on a substantial lawsuit against IBM and the potential to capitalize on Linux."
SCO Group made headlines when its sued International Business Machines Corp. in March claiming IBM had transferred some of its intellectual property into the popular Linux operating system. IBM denied the claims and filed a countersuit. SCO is also trying to collect royalties from Linux users.
"The IBM lawsuit and the potential for Linux licensing deals offer plenty to be excited about, while failure would render the shares worthless, in our view," Mr. Skiba wrote in a research note.
Mr. Skiba said he isn't attempting to predict the outcome of the legal case and doesn't know whether SCO Group's claims have merit. He warned the "risks are numerous and the shares should be considered speculative."
For the record, I'm probably almost as ignorant as Skiba, but I'm hoping SCO will lose its suit, and am -- based on what I know -- optimistic. I did a back-of-the-envelope calculation a few weeks back which put an upper bound on the value of SCO -- assuming they win the suit -- at $100/share. I have no position in the stock (I'm too ignorant to go short, and I know it).
