SCO Group Soars on Upgrade
The largest risk is SCO Group's legal claims being without merit, Skiba wrote. "A lawsuit against a large and rich company such as IBM is a dangerous undertaking, and it could cause SCO to overextend its legal reach and budget," he wrote. In addition, SCO is being sued by Linux vendor Red Hat (RHAT). Skiba has a hold rating on Red Hat. His firm hasn't done any investment banking with either Red Hat or SCO.
"This is not for widows and orphans," Skiba said of an investment in SCO. "Hedge funds would be a more appropriate market to buy this stock."
Hedge funds, however, may be on the other side. Currently, almost 12% of the stock's float is short, and the days to cover short interest went up to 5.13 on Sept. 15 from 4.51 on Aug. 15.
The only other analyst who covers SCO is Dion Cornett of Decatur Jones Equity Partners, according to Thomson First Call. He has an underperform rating on the stock.Investing in SCO is like buying a "lottery ticket," Cornett said Wednesday. "I think at the end of the day, the lottery ticket is not a winner," he added. "They will not prevail in their lawsuit against IBM." Cornett believes that IBM fights to the death when it believes it's right, as it clearly does here, and therefore a settlement is unlikely. Given the complicated intellectual property issues and David and Goliath tenor of the case, Cornett said, SCO could prevail in a jury trial. But he believes Big Blue would win on appeal. "I think it's a stretch to think that an appellate court is going to overturn 100 years of copyright law," he said.
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