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MSFT Up As Market Struggles
The market is trading sideways on mixed earnings in early trading. Shares of MSFT are climbing up. The company will report third quarter earnings on Thursday, October 28 at 5:30pm. Other upcoming catalysts include insight into upgrade cycles of Office 2010 and Windows 7; any entrance into the tablet market (even just as an operating system); the launch of Windows Phone 7; any adoption of the company’s cloud computing efforts; and gamer adoption of Kinect. The stock currently trades at 9x Enterprise Value / TTM Free Cash Flow, inexpensive compared to historical trading multiples.
Thoughts From The Street Ahead Of The Quarter (Various)
Analysts try to assess the damage:
- David Hilal at FBR downgraded Microsoft citing the common concerns of slowing PC-growth and exploding growth of the iPad and tablets. Hilal rates the stock a Market Perform. FBR is joining Goldman, Janney Capital, and Barclays, who have all cut Microsoft’s rating this month. All for the same basic reasons.
- Adam Holt at Morgan Stanley believes that with weaker consumer PC demand, Microsoft estimates are moving steadily lower and with a number of recent downgrades, expectations quite low. Adam thinks corporate sales have been stronger and annuity revenue is improving, as is Office. Therefore, he believes the stock is undervaluing sustainable double digit EPS growth and he is still a buyer with an Overweight rating and $30 price-target.
- Bank of America Merrill Lynch analyst Kash Rangan knows that Microsoft has likely underperformed year-to-date due to macro concerns, unproven mobile and tablet strategy, and competition from Apple. However, the stock could be a defensive play (2.5% div yield), trading at only 11x price-to earnings. A potential Win 7 corporate PC refresh and Office 2010 as well as potential for Win 7 tablets could be catalysts. Microsoft also received the highest net wallet share in his 3Q IT survey. He reiterates his Buy rating.
The Only Thing Microsoft Will Gain From Retail Stores Is Embarrassment (Cult Of Mac)
Consider the source, but Microsoft’s retail store in the Mall of America will fail for several reasons; 1) they will likely not be profitable; 2) for the average mall goer’s journey into the Microsoft Store will not be like an exotic and beautiful alternative universe (Apple); 3) placing the store directly across from Apple will highlight Apple as consistently busier with a much broader spectrum of consumer; and 4) the lack of Genius Bar.
Ozzie Says The PC Is Dead (The Financial Times)
Ray Ozzie has never hidden his view that Microsoft’s army of developers and product managers have clung to a PC-centric view of the world for far too long. Now, on the eve of leaving the company, he has penned a memo confronting a subject that is still taboo at the world’s biggest software company: that we have entered the Post-PC era. That’s a nice slap in the face for a goodbye. Not too mention he also notes that Microsoft can’t rely on its installed base forever. He sounds like the only man of reason over there. And he’s leaving.
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