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MSFT Down As Market Gets A Respite
Americans’ confidence in the economy improved slightly in August. That should be short lived. Shares of MSFT are trading sideways as a result. Upcoming catalysts include upgrade cycles of Office 2010 and Windows 7; any entrance into the tablet market; the launch of Windows 7 mobile; any adoption of Azure (cloud computing); and gamer reaction to Kinect. The stock currently trades at 8x Enterprise Value / TTM Free Cash Flow, inexpensive compared to historical trading multiples.Top Hedge Fund Managers Pound The Table On Microsoft (Reuters)
Top hedge fund managers (Dinakar Singh and David Einhorn) scooped up shares of Microsoft during the second quarter, taking advantage of historically low price-to-earnings multiples for the world’s largest software company. The stock is now trading ~10x expected 12-month forward earnings, close to its lowest multiple on record and a 70% discount to peers. Even Whitney Tilson believes the shares are “insanely cheap for a company of this calibre and market position.”
Analysts Weigh In On Intel’s Warning And Its Impact On Microsoft (Various)
Intel announced that its third quarter revenue will be below the company’s previous outlook. Intel revised the mid-point of September quarter revenue to an increase of 2% sequentially vs. 8% previously, due to weakness in developed market consumer PCs:
- Philip Winslow at Credit Suisse believes that despite the consumer slowdown and its negative impact to his above-consensus Microsoft estimates, several PC-related positives remain in the market: 1) there is no evidence of any reductions to corporate PC build plans (~53% of global units); 2) Europe sell-through (~22% of global units) was less impacted than feared during the second quarter; and 3) Windows-based tablets will likely be available in stores before Thanksgiving. He is cutting his September quarter estimates to revenue of $16.2 billion and EPS of $0.59 from revenue of $16.5 billion and EPS of $0.61. That said, Microsoft remains his top pick in large-cap software.
- CLSA analyst Ed Maquire is adjusting his Microsoft revenue and EPS estimates to reflect third quarter softness in the consumer PC market, driven by iPad cannibalization of netbooks and softer US and European demand. Impact on his forecast is cushioned by the relatively low price points of impacted products and corporate demand, which has trended toward premium SKUs. He thinks lingering weakness in MSFT shares does not reflect potential from enterprise products, Azure cloud services and a revitalized Xbox and Halo franchise. While near-term concerns are likely to weigh, Ed thinks that current valuation does not reflect the potential upside. He continues to rate Microsoft Buy with a $32 target price.
Microsoft Shows Google Some Love, Introduces Bing For Android (The New York Times)
Microsoft’s Bing released an application for the Android platform from Google. The move could be seen as an encroachment on Google’s turf, as the two companies compete directly on a number of search platforms. The app comes with the typical Bing offerings, including image search, movies, maps, local, news and driving directions. From the products Microsoft highlights in its announcement, it seems that the company is trying to separate itself from Google by highlighting features that Google does not offer. Whatever works at this point.
Microsoft Now Thinks It’s A Good Time To Invest In China Search (The Wall Street Journal)
Microsoft is looking for a Chinese joint venture partner to expand its Internet search services in China, the largest Internet market dominated by incumbent Baidu. The company is aiming to turn around its less than 4% market share and become a major player. Microsoft’s search engine, Bing, is currently operated in China by Shanghai MSN Network Communications Technology Co., a Microsoft joint venture with Shanghai Alliance Investment Ltd. Perhaps the time to have done this was when your arch rival, Google, was struggling. Good luck guys.