Novell, Inc. (NDAQ: NOVL) shares moved sharply higher after the company reported better-than-expected earnings in its latest 8-K filing with the sEC. Shareholders were surprised by a swing to profitability as well as strong growth in its Linux business. Meanwhile, many are looking forward to seeing how the company will integrate its new acquisitions as potential upsell opportunities to expand revenues even further. So, what does the future hold for this once-struggling technology company?

Novell reported revenues of $231 million on net income of $8 million profit in the first quarter. This compares to revenues of $218 million on a net loss of $21 million during the same time period last year. The swing to profitability caught many investors by surprise as the company was boosted by strong performance from its Linux platform business, which grew 65 percent year-over-year. However, the majority of its revenues were still derived fromits workgroup products, which grew a modest 1 percent year-over-year.

“We are very pleased with our results this quarter. We delivered product revenue growth across all business units and continued expense control this quarter,” said Ron Hovsepian, President and CEO of Novell. “These results are indicative that our strategic initiatives are yielding tangible results and that we are on the right path to achieve long-term, sustainable profitability.”

Novell’s partnership with Microsoft is one of the main drivers for growth in its Linux platforms business. Although they are only into the second year of the deal, Novell has already earned $141 million from the arrangement - or 59 percent of what the five-year agreement stipulates. There is also a lot of opportunity for upselling inside of those relationships, which could prove to be even more of a boost in the future. And finally, Novell also sees opportunity with the launch of Microsoft’s new Windows Server 2008, which it sees as an opportunity to attack Microsoft’s installed base.

“Microsoft is managing the outward competition, but they are also managing their older installed base and the different versions that they are on,” Hovespian said. “We see that as opportunity for our company to attack that installed base. I’m sure the competitive fires will remain strong between both companies.”

The majority of today’s stock price movement, however, likely comes from Novell’s strong guidance. The company upped its guidance for 2008 with revenues now slated to be between $940-970 million compared to prior estimates of $920-945 million. Meanwhile, the company expects operating margins to be between 7 and 9 percent excluding all acquisition-related intangible asset amortization. This is far higher than what many analysts were expecting and may even be raised in the future if the company continues to see stronger growth on the heels of its Linux platforms division.

In the end, this is all great news for shareholders as Novell continues to push forward. Shareholders are not only looking towards solid growth in its Linux business but also for the results of the firm’s acquisitions of virtualization management vendor PlateSpin and open source collaboration vendor SiteScrape earlier this month. It will be interesting to see how the company integrates these businesses as more potential upsell opportunities. Combined, these factors make NOVL a stock that is definitely worth watching!

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3Com Corp. (NASDAQ: COMS) is up almost 20% on reports that Bain Capital LLC and Huawei Technologies Co. plan to reapply for U.S. regulatory approval to buy the network-equipment maker.

The financial terms of the original deal probably won't change much - a $2 billion price, 85% stake for Bain and the remaining minority share of Huawei. The difference is Huawei would not have access to sensitive technologies that blocked the deal in the first place.

Last week, the deal fell apart because a little-known wing of the Treasury Department known as the CFIUS appeared likely to block the acquisition. As SECInvestor's earlier article said on the matter:

"Huawei, the largest network company in China with strong ties to the country's Communist government, has been accused in the past of selling communications equipment illegally to rogue states such as Saddam Hussein's Iraq. In addition, the company raises concerns even superficially as it is run by a former Chinese Army Officer.

3Com provides some network security solutions to the U.S. Defense Department, and with Chinese hackers seen as a major threat to U.S. infrastructure this acquisition was a hot political issue. In fact, the senior Republican member of the House Foreign Affairs Committee even sponsored a bill to specifically prevent 3Com's sale.

Under such scrutiny, Bain decided to drop its request for approval of the deal by the CFIUS, effectively meaning the deal is dead in its current form. The problematic Defense Department business is actually done only by a small wing of 3Com known as TippingPoint, and there is a possibility the deal could be renegotiated to exclude that unit."

Though it seemed likely that Bain would be just as happy to leave the deal dead given the state of the economy and 3Com's rather weak business currently, instead the firm may look to capitalize on the regulatory hurdles in order to secure a lower purchase price. With 3Com's core business still a distant second to giant Cisco Systems (NASDAQ: CSCO), even a deal at a lower price is good news for 3Com shareholders.

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Dell Inc. (NDAQ: DELL) shares fell sharply today after the company announced disappointing results in it’s latest 8-K filing with the SEC. The computer-maker cited high-than-expected costs as the reason behind its earnings shortfall despite laying off 3,200 employees and taking other cost-cutting measures. Many shareholders are now questioning the company’s ability to execute upon its long awaited turnaround plan that is now facing another setback. So, is Dell a stock worth buying at these depressed levels or perhaps more of a short candidate than anything else?

Many investors are concerned about the chronic cost increases that Dell faces in the computer hardware business. During the fourth quarter, the company saw its revenues expand 10% while its operating income and net income both fell by 6%. This is a clear indication that profitability was waning due to either increased costs or lower selling prices. Gone are the days where Dell’s superior inventory management and online selling provided it with a competitive advantage. Now, even Dell faces lower selling prices across the board while its costs are going up due to expansion outside of pure Internet sales.

“While Dell continues to drive towards a world-class cost structure and competitiveness we have much work to do,” Mr. Dell said. “Resurgent growth puts us on a strong footing to improve our cost position, scale expenses and enhance productivity across our business. I am confident that from this base we can continue to drive improvements in profitability.”

The kicker was a short outlook where the company stated that it will “continue to incur costs as it realigns its business to improve growth and profitability” which may “adversely impact the company’s near-term performance”. Dell also hinted that it expects a slowdown in consumer demand as customers display more “conservative spending” as a result of the credit crunch. Combined, these comments are likely what sent shares down today as investors now know that they shouldn’t expect results to improve at all in the near-term.

The one bright spot in its future is sales growth seen in countries outside of the United States, which was up 16 percent and now account for nearly half of the company’s total revenues. Growth was particularly strongin BRIC (Brazil, Russia, India, China) countries where revenues grew 36 percent on a 50 percent increase in units. Meanwhile, Asia Pacific countries and Japan saw revenue growth of 28 percent while Americas International revenue grew 22 percent. Dell will likely continue to rely on strong growth abroad to offset what will obviously be lower sales in the US as consumer credit continues to be a problem.

In the end, this is another disappointing quarter for Dell shareholders. The company’s old paradigm no longer works in today’s world and we have yet to see if it can adapt and turn itself around. Overseas growth in emerging markets has done exceptionally well, but the company will need to reign in its costs before it can regain any trust. Regardless, it is a stock that is definitely worth watching over the next year or so as it attempts to maneuver a turnaround!

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A year ago coal was a dull market after a warm winter in 2005-2006 generated record inventories and sent coal prices plummeting. As a result, most coal stocks saw declines of 50 percent or more from late 2006 to early 2007 and few buyers could be found. However, the situation has now greatly changed as the ongoing tightening of supply and demand in the US coal market has caused coal prices (and stock prices) to skyrocket. So, what are the forces behind this move and where are the opportunities in this sector these days?

Spot prices for coal, which is the price of a ton of coal for immediate delivery, are trading at new highs while US coal supplies have tightened due to a series of new environmental laws and safety regulations. These new regulations were primarily targeted at the east coast and forced many smaller mining operations to shut down as they simply could not afford the cost of compliance. Meanwhile, larger players were forced to scale back their operations due to the increased cost of doing business. At the same time, coal demand surged as a result of demand abroad.

China is the source of most of this demand after it became a net importer of coal in 2007. The country is already the largest producer and consumer of coal, but is now seeing its consumption grow even more rapidly. In fact, the Chinese government even banned exports of coal in China to help keep costs down and ensure there was enough to go around. All of this demand from China is eating up the supply that was traditionally earmarked for Europe, which is forced to import the majority of its coal. Now, Europe is turning to the US in order to fill this need.

There have also been several recent events that have helped boost prices. First, heavy rains in South Africa have impacted their coal exports while the fourth-largest coal exporter in the world also stated that it would need to keep more of its own mined coal for domestic consumption. Secondly, Austrialia has also been suffering from heavy rains that has disrupted coal production for the largest exporter. And finally, Indonesia is expected to become the world’s largest coal producer, but no longer believes it will be able to supply as much as previously expected.

So, what stocks are worth watching to take advantage of these circumstances? One of the most successful coal stocks this year has been Patriot Coal (NYSE: PCX), which spun off from its parent Peabody (NYSE: BTU) in October. Since then, the stock is up a healthy 56.59% as a result of strength in the coal market and a compelling future development in the Appalachians where it has 446 million tons in reserves alone that represent some of the lowest sulfer (highest quality) coal in the market. Combined, its 9 million ton reserve base dwarfs that of competitors and are in strategic locations that enable them to easily export abroad and ship domestically.

Investors looking for a more diversified play on the entire sector may want to check out the Market Vectors-Coal ETF (NYSE: KOL) that offers a sort of “mutual fund” focused on just coal companies. The ETF’s top 14 holdings - or 70% of its portfolio -are all up and midstream producers that are marginal producers and should give good exposure to the sector. The only problem with the ETF is its stake in Huaneng Power (NYSE: HNP), which is a power-generating consumer of coal and not a producer.

Other coal stocks to watch include Consol Energy (NYSE: CNX), Peabody Energy (NYSE: BTU), Arch Coal (NYSE: ACI), Joy Global (NDAQ: JOYG), Bucyrus International (NDAQ: BUCY), Transalta (AMEX: TA), and James River Coal Company (NDAQ: JRCC). All of these companies should benefit from the rise in coal prices, but the extent of which depends on how many long-term contracts they can ink while prices are high. For now, many of them are struggling as they export cheap coal under old contracts. Regardless, these are all stocks that are definitely worth watching!

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EOG Resources, Inc. (NYSE: EOG) shares moved sharply higher today after the company announced it increased organic production growth estimates for 2009 and 2010 to 13 to 15 percent from the previously stated annual average of 10 percent. The oil company also disclosed information about four promising new crude oil and natural gas plays that could contribute to future reserve and production growth. And finally, it increased the potential reserve recovery from its Fort Worth Barnett Shale and Uinta Basin natural gas players. Combined, this is great news for shareholders as increased production schedules combined with record crude oil prices make for a profitable combination!

“By applying our expertise in horizontal drilling and completion techniques, EOG is positioned to replicate its success in the Fort Worth Basin Barnett Shale and North Dakota Bakken with several newly identified onshore North American plays that show substantial promise,” said Mark G. Papa, Chairman and Chief Executive Officer. “Although some of these discoveries are in the very early stages of delineation, they are expected to impact EOG’s reserves and production in the coming years.”

There are two key things worth noting in these recent statements. First, EOG Resources has developed better horizontal drilling and recover techniques that should allow it to achive higher per well reserve recoveries not only in Fort Worth but in future projects as well. Secondly, there are several remaining potential production increases that have not been considered for EOG’s production growth targets for 2009 and 2010. One in particular is a fourth horizontal well being drilled in northeastern British Columbia’s Horn River Basin where the company owns 140,000 net acres.

In the end, these production increases and potential production increases combined with increasing energy prices should not only enable EOG Resources to meet its future growth targets but surpass them by a substantial margin. Shares have rise over 20 percent today, adding billions to the company’s market cap, but there may be some room yet for even more upside when things settle down. Combined, these factors make EOG a stock worth watching closely!

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Unfortunately for Eli Lilly and Co. (NYSE: LLY), the FDA has rejected its application to sell a once-a-month injectable version of its schizophrenia drug Zyprexa.
 
The pharmaceutical company announced that the FDA issued a "not approval letter" for the drug, due to concerns about excessive sedation. This means that Lilly needs to perform additional studies before the drug can be reconsidered. This decision overrules a nonbinding recommendation issued earlier this month by FDA advisory panel that the drug should be approved despite concerns surrounding excessive sedation.

Given that the FDA usually follows the recommendation of its advisors, this news was surprising to the company and investors. Eli Lilly understandably said it was disappointed by the FDA's decision.

The drug is an alternative to Zyprexa, which is designed to ease hallucinations and other symptoms of schizophrenia. Zyprexa is already on the market in tablet form, but this new drug would allow administration only once a month.

A "not approval letter" usually means a drug is dead, but even if Eli Lilly can convince the FDA this hurdle will cause a significant delay to market.

This is all bad news for the Indianapolis-based company because though it has almost $19 billion in annual sales, this drug was predicted to add $500 million annually within two years. Long-term, a pharmaceutical company is only as good as its drug pipeline, and with Eli Lilly shares down only about 2% on the news the share price may not yet reflect the full consequences of this decision.

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MiddleBrook Pharmaceuticals, Inc. (NDAQ: MBRK) shares continue to surge today after the company said earlier this month that it hired Morgan Stanley to explore strategic alternatives, including a possible sale of the company. A recent FDA approval in January helped triple the company’s market value while an analyst commented that the company could look at a premium of 30 percent in case of a potential sale. Many other investors believe that the company could see an even higher premium given its novel Pulsys technology that would also be acquired. So, is MBRK a stock worth adding to your portfolio?

MiddleBrook received approval for its New Drug Application (NDA) from the U.S. Food and Drug Administration (FDA) for its one-daily Moxatag Tablets 775mg for the treatment of adults and pediatric patients 12 years and older with pharyngitis and/or tonsillitis secondary to Streptococcus pyogenes. According to the company, the approval was based on the company’s Phase 3 clinical study of more than 600 adults and pediatric patients 12 years and older in a double-blind, double-dummy, randomized, parallel-group, 50-center non-inferiority trial. News of this approval jumped shares from around $1.50 to over $3 the next day.

“We are extremely gratified to have received FDA approval of our MOXATAG NDA,” stated Edward Rudnic, Ph.D., president and CEO of MiddleBrook. “As the first and only once-daily amoxicillin therapy approved for marketing in the United States, we believe MOXATAG represents a major advance for patients and doctors seeking safe, effective, and convenient treatment options for strep throat. We now look forward to continuing our ongoing strategic evaluation process from a position of greater strength with this approval in hand.”

The approval brings to market the first major product that illustrates MiddleBrook’s PULSYS technology. This technology is essentially a change in the dosing paradigm that allows for more effective treatments that only have to be taken once daily. PULSYS exposes bacteria to rapid antibiotic pulses within the first hours of initial dosing, which appears to cripple bacteria’s natural defense mechanisms and eliminate them more efficiently and efectively than traditional infectious disease therapy regiments. MiddleBrook is one of the only high-tech companies focused on the antibiotics sector and seeks to redefine infectious disease therapy with this process. And it seems to be working in this latest drug release.

“Compared to four times daily penicillin, once-daily MOXATAG has shown comparable efficacy and tolerability in eradicating Group A streptococcal infections of the pharynx. However, the once-daily dosing of MOXATAG is a major advantage,” said lead study investigator Stan L. Block, M.D., professor of clinical pediatrics at the Universities of Louisville and Kentucky Medical Schools. “For the first time, physicians in the U.S. have the option of an FDA-approved once-daily amoxicillin therapy to treat their adolescent and adult patients with pharyngitis/tonsillitis. This should ensure better first- line therapy compliance with a penicillin class of antibiotic.”

In the end, all startup biopharmaceutical companies are risky ventures as they have no revenues and high R&D overhead. That said, MiddleBrook recently received an NDA and go-ahead from the FDA and was even able to raise an additional $21 million through a stock offering. This means that they should have a product to market within the next year while other investors are showing enough confidence to capitalize the company and keep it alive until it becomes profitable. However, given the steep rise in recent days, we could see a pullback before any more substantial gains. Combined, these factors make MBRK a stock worth watching in 2008!

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Elan Corporation (NYSE: ELN) is a pharmaceutical turnaround story that may soon get even better. The pharmaceutical company had a brush with bankruptcy in 2002 and reported a wider-than-expected loss of $405 million for 2007. However, the company said it expects a sharp turnaround in 2008, forecasing revenue growth of over 30 percent and possibly exceed $1 billion, driven by sales of its flagship multiple sclerosis drug Tysabri. The company currently receives 50 percent of the revenues from the drug when sales exceed $700 million. Altogether this turnaround story already has shares trading near their 52-week high, but many investors believe that they could get much higher next year.

Elan is also considering spinning off its development and manufacturing division Elan Drug Technology (EDT), which could be worth up to $1.5 billion. The company said that EDT has been consistently profitable and an important source of financing for the firm, with EBITDA of $125.5 million on revenues of $295.5 million in 2007. Meanwhile, the remaining biopharmaceuticals division posted a loss of $155.9 million on revenue of $463.9 million. Management reportedly wants to saddle the technology unit with $1 billion of debt to unlock value in its remaining biopharmaceuticals business as it pushes into profitability with the help of Tysabri. This is a classic move that could pay big dividends.

So, how will these events impact shares? Well, Tsybri is a blockbuster drug but does face a small hurdle with its newly-disclosed risk of liver injury. This is common for many drugs and the company kept its sales forecast, but it is a concern that it worth noting. Meanwhile, spin offs are well known for unlocking value in situations like this one. Now that the biopharmaceutical division won’t need additional financing through EDT, the move makes perfect sense to unlock value through debt reduction. Additionally, spin offs in general tend to outperform the overall market during their first two years for a variety of reasons.

In the end, this is all great news for shareholders. Elan has a blockbuster drug on its hands with revenues that could exceed $1 billion next year while it is also taking action to unlock value through a spin off. It not not too common to find a company with such savvy to act so quickly to unlock shareholder value. Shares may be trading near their 52-week high now, but they could definitely extend much higher over the next year. This makes ELN a stock that is definitely worth keeping an eye on in 2008!

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The Brink’s Company (NYSE: BCO) shares rose 1.4 percent today after the security company announced that it would spin off its home security unit in order to appease a growing number of dissident shareholders. The news comes after enormous pressure from activist shareholders Pirate Capital and MMI Investments, both of whom planned proxy contests to overtake the board if changes were not implemented. The company has finally agreed with the activists after completing a review of its strategic options with the help of the Monitor Group and Morgan Stanley. The Brink’s Home Security unit is one of the largest and most successful residential alarm companies in North America and the spin-off should unlock substantial value for shareholders who have been struggling to realize value in their investment.

“Today’s announcement, which is the culmination of a comprehensive and thorough review of the strategic options available to the company, further demonstrates the board’s commitment to enhancing shareholder value,” said Michael T. Dan, chairman, president and chief executive officer of The Brink’s Company. “Both BHS and Brink’s, Inc. are market leaders that outperform their respective peers on almost every operating metric. As separate publicly traded entities, each company should benefit from enhanced management focus, more efficient capitalization and increased financial transparency. In addition, shareholders will have a more targeted investment opportunity, and incentives for management and employees will be more closely aligned with company performance and shareholder interests. Given these advantages, we are confident that this transaction will enable BHS and Brink’s, Inc. to more quickly realize the valuations they deserve. I commend the employees of both BHS and Brink’s, Inc. for their hard work and dedication in building these two great businesses. I am confident that both companies will continue to create value for their shareholders, employees and customers.”

The spin-off will convert Brink’s into two separate publicly traded companies:

1. The Brink’s Company includes the businesses of Brink’s Inc., the world’s premier provider of secure transportation and cash management services. The company has approximately 54,000 employees at operations in more than 50 countries, had 2007 revenues of approximately $2.7 billion and operating profit of $223.3 million.
2. BHS, which has approximately 3,600 employees, is one of the largest and most successful residential alarm companies in North America. In 2007, BHS had revenues of approximately $484 million and operating profits totaling $114.2 million. BHS operates in all 50 states, the D.C. and several markets in two western providences in Canada. BHS’s ability to provide an outstanding customer service experience as awarded by J.D. Power and Associates, has created a loyal customer base that includes approximately 1.2 million systems under monitoring contracts. Through its dedication to high quality customer service, BHS maintains one of the highest subscriber retention rates among major residential alarm companies.

Brink’s also reached an agreement with activist hedge fund MMI Investments whereby one of their nominees will be supported as a director at the 2008 annual meeting while another director of theirs will be nominated at BHS following the spin-off. In return, MMI has agreed to withdraw its request to nominate any directors at the next annual meeting. Combined, these events represent yet another victory under the belt of activists and should result in substantial value creation for shareholders that many estimate as high as 40% to 50% premium. These factors make BCO a stock that is definitely worth following over the next few months!

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Oracle Corp. (NASDAQ: ORCL) said today that the U.S. Department of Justice and Federal Trade Commission approved early termination of the Hart-Scott-Rodino review period for its acquisition of BEA Systems Inc (NASDAQ: BEAS). Early termination means the Justice Department completed the review in advance of the 30-day maximum period allowed under antitrust law.

BEA has a special meeting of its stockholders planned for April 4 in order to vote on the merger. Though getting U.S. regulatory approval clears a major hurdle, the transaction still requires BEA stockholder approval and European Union regulatory permission.

Oracle said it agreed to buy BEA for $19.375 per share in January after earlier offers from Oracle were spurned for being too low, such as last year's $17 per share offer that valued the company at $6.7 billion. The current offer is worth approximately $8.5 billion.

The real question is, will the deal actually add value for Oracle now that it will probably be completed? Oracle said it expects only expects BEA to add one to two cents per share to adjusted earnings in the first year after the deal closes. Oracle has been on a spending spree in the last few years with CEO Larry Ellison spending more than $25 billion buying competitors like PeopleSoft, Siebel Systems and Hyperion Solutions.

Despite these purchases, Oracle has seen mediocre performance, especially in the last twelve-months. Combine this with Ellison's continued divestment from the company - 1 million shares just last month - and Oracle is definitely a hold, not a buy, right now.

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