THE MICROSOFT INVESTOR: Analysts Anticipate Dividend Hike After Encouraging Enterprise Outlook

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MSFT Flat As Market Dips
Disappointing economic reports and mixed earnings from the corporate side pressure the market a day after Wall Street’s big rally. Shares of MSFT are flat. Upcoming catalysts include upgrade cycles of Office 2010 and Windows 7. The stock currently trades at 9x Enterprise Value / TTM Free Cash Flow, inexpensive compared to historical trading multiples.Wall Street Weighs In On The Financial Analyst Meeting (Various)
Some highlights:

  • Todd Raker at Deutsche Bank said it best, “we would characterise the event as useful but uneventful.” He believes that the company’s three main business units (Client, MBD and Server & Tools) will remain well positioned for profitable growth. Todd also believes the stock represents a risk / reward opportunity and maintains his Buy rating.
  • Barclays Capital analyst Israel Hernandez says that Microsoft appears to have gotten the message that it has to address consumer shortcomings, which is encouraging. Sustained earnings growth remains a key financial focus with expenses to remain in check for the foreseeable future. He expects no major change of pace for buybacks but anticipates a dividend hike in September.
  • Walter Pritchard at Citigroup believes that the corporate PC refresh cycle is just starting to take shape and remain a source of growth. The shares trade at a meaningful discount to peers and the S&P due to secular concerns. He expects over the next year, the bias to estimates will continue to be higher and secular positioning will not worsen (phone), can improve (tablet) and is underappreciated (cloud).
  • J.P. Morgan analyst John DiFucci believes that the common theme across the company’s presentations was an increased focus on leveraging the Internet, or Cloud across all its businesses. He views this as a change in high level messaging from the company. He continues to rate the shares Neutral.
  • Adam Holt at Morgan Stanley left the meeting feeling: 1) the enterprise outlook has improved materially and this momentum should continue; 2) operating expenses are largely fixed for next fiscal year and revenue upside will flow to EPS; 3) the company will continue to aggressively buyback stock and likely increase the dividend. He believes the current share price undervalues the accelerating growth story, and remains a buyer with a price-target of $35.

Kinect Impresses As The Next Generation Of Gaming (Fortune)
Microsoft’s newest controller hub for Xbox 360, Kinect, is surprisingly awesome and deemed as the “next generation of gaming.” But while Kinect looks extremely promising, there are still concerns about the price. Because of the higher price-point, don’t expect it to be a runaway success out of the gate.

Daily Trader; Why MSFT Was The Worst Trade Of Last Week (The Street)
Marek Fuchs talks Microsoft, his worst trade last week and examines what went wrong. He recommended investors to Buy Microsoft last week. The consumer confidence numbers had just come out which didn’t allow the stock to appreciate earnings. The stock was still stuck in the mud and as the vultures continued to circle Ballmer for not getting the stock going, this talk created negative momentum. You can’t win them all.

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