Goldman Sachs reinstated Microsoft (MSFT) with a Buy and $38 target after the collapse of Yahoo (YHOO) talks. MSFT’s refusal to overpay is indicative of strong “price discipline,” says Goldman:
The decision to drop its offer for Yahoo! at least for now, suggests that Microsoft has remained more price disciplined than investors may have feared. While the Online Services Business remains lackluster, and Microsoft will still be reuired to invest significantly to drive better momentum here, we view the decision to walk as a positive catalyst for the shares near-term. In addition, we would expect ongoing momentum from areas such as gaming (driven by GTA4 release this quarter), and Windows Server 2008 to add tailwinds to top-line growth in the next few quarters, combined with a better focus on margins to add to EPS growth. Our bottom-line growth for 2009 stands at ~15%, hence with no multiple recovery the shares appear poised for reasonable appreciation.