UPDATE 1-Jefferies raises Novell to buy

(Recasts; changes source, adds details, analyst comments)

June 27 (Reuters) - Jefferies & Co upgraded Novell Inc (NOVL.O) to "buy," saying the business software maker's installed base in government and educational institutions, and a large maintenance stream makes it less vulnerable to a drop in spending.

The brokerage also said the company's shares are cheap, margins expanding and there might be a new partnership with Microsoft Corp (MSFT.O) on application virtualization product on tap.

The brokerage, which has a price target of $7.50 on the stock, also expects he company might to buy back stock slowly.

It previously had a "hold" rating on the stock, which was up more than 1 percent at $6 in early trade on Nasdaq. (Reporting by Adheesha Sarkar in Bangalore; Editing by Anil D'Silva)