Sybase Inc. (SY) just reported a very strong quarter with gross margin improvements, across the board strength and a solid outlook.
From a catalyst perspective, activist shareholder Sandell Asset Management (A firm headed by an ex Carl Icahn fund employee) recently upped their stake in Sybase by 1.18 million shares raising their total holdings to 5.4 million shares or roughly 6.03 % of the shares outstanding. One of their first orders of business is to propose their own slate of candidates to be nominated to the board of directors. This supports a view that Sybase is clearly a prime candidate for continued additional activist involvement or an outright takeout.
With JAVA buying MYSQL (Lnux DBSE vendor) last week, it would not be surprising to see another hardware vendor scoop up Sybase. Expectations are still relatively low with only 3 buys 4 holds and 1 sell. Trading at an EV/Rev's of approximately 2.10 and 14 x consensus 08 EPS, Sybase is not expensive. In a consolidating sector with technology that's relevant, we would recommend a long position in SY with near term catalysts of additional activist news flow.
Technically this has been one of the strongest tech stocks in a weak tape. Stocks that act strong in a bad environment always stand out as it shows conviction on the part of buyers. With good base support and a strong uptrend from the 2003 lows still intact, SY shares can be accumulated on an average cost basis here and on pullbacks. Only a violation below $ 22.50 would turn the story outright bearish – a tighter stop could be placed under the recent weekly reversal low near $ 24.00 for those who want to tighten up the risk. Our point and figure derived projected upside target is $ 34.50.