THE MICROSOFT INVESTOR: Windows Performance As Well As Margins At The Forefront Of Earnings Watch

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MSFT Up Strong To Start The Week 
A stronger-than-expected Consumer Confidence Index is adding to early morning gains in the market today. Shares of Microsoft are up strong, nearly 1.5%, ahead of earnings. Upcoming catalysts include fiscal third quarter earnings to be announced on April 28 at 5:30pm Eastern Time; entrance in the tablet market at some point; Windows Phone 7 adoption with hardware partner Nokia; strides against current market leaders in cloud computing; retooling the Bing / Yahoo! partnership for international launch; and continued momentum of Kinect and the next gen console. The stock currently trades at 8x Enterprise Value / TTM Free Cash Flow, inexpensive compared to historical trading multiples.

Windows Performance And Margin Factors To Watch For On Thursday (Forbes)
Microsoft earnings are around the corner. For the stock, a key factor to watch is the performance of Windows. The OS accounts for roughly 40% of the stock value by Trefis research estimates. Erosion of operating margin will be at the forefront of investor concern as well as operating system market share continues to decline coupled with spending in non-profitable businesses. Trefis currently has a $31.64 price-target for the stock, about 25% above market price.

Whitney Tilson Still Likes Microsoft, Despite Losing Over 8% In Value Last Year (Insider Monkey)
Whitney Tilson is still extremely bullish about Microsoft. Recently Tilson recommended “big-cap blue chip companies that are trading at moderate prices”. He notes that while Apple is a great business, investors “can own a better business, albeit one that is not growing as quickly — but still growing nicely — for half the price in terms of price-to-earnings multiple.” Microsoft would fit into that category.

Microsoft Trying To Sell One Of The Many Companies It Bought For Bing (MergerMarket)
Microsoft is looking for a buyer for its Ciao European comparison shopping business. Microsoft bought Ciao’s parent company Greenfield Online in 2008 as part of its acquisition binge to improve its search engine. It also bought travel information site Farecast and contextual search service Powerset for more than $100 million apiece around the same time. Read more at Business Insider.

Let’s Try This Again, Microsoft For Yahoo! (Forbes)
Yahoo on the selling block is not an uncommon story. So would a Microsoft-Yahoo round two merger be a good idea? Some unhappy large shareholders of Yahoo! think so. A few are now seeing signs that Microsoft may be poised to take another stab at Yahoo. The company is arguably way undervalued based on the company’s cash hoard of $3.5 billion and the value of its other assets. And the board might finally understand that it’s time to sell.

Microsoft Finally Paying Up To Retain Talent (Reuters)
Microsoft plans to broadly raise salaries and stock awards to attract and retain top talent. After the last few years of a massive brain drain from the software giant, it’s about time. The action follows Google’s 10% increases this year. Many employees are saying it’s too little, too late.

Microsoft An Out Of favour Stock With Potential To Outperform (Wall Street Cheat Sheet)
What are analysts’ and hedge funds’ favourite stocks? The top of the list is dominated mainly by mega-cap technology stocks. Cisco, Google, Hewlett-Packard, Microsoft and Intel are extremely favoured by hedge funds and Wall Street analysts. Unfortunately, all of them had negative returns so far in 2011, but could end up outperforming the market over the next year or two.