Will Pre-Windows 7 Quarter Be a Boon or Bust for Microsoft? (MSFT)

October 22, 2009 2:53 PM EDT

Ahead of its Q1 earnings report due out tomorrow before the market opens, Microsoft (Nasdaq: MSFT) shares are down 0.3% to $26.50, underperforming the Nasdaq which is currently up about 0.4%.

Also impacting traders, Microsoft launched Windows 7 today. There, we said it, and no, it wasn't in
the first paragraph, it was the second.

Okay, let's get back to the numbers. Microsoft has been a little short in meeting Street estimates over the past several earnings seasons. Last quarter (Q4), Microsoft posted EPS of $0.34, short of the $0.36 the Street had been expecting. Revenues for the quarter also missed the analyst consensus, coming in at $13.1 billion.

Microsoft shares are up about 12% since Q4 ended, ahead of the Software and Programming Industry, which is up just 9.6%.

According to Bloomberg, 25 analysts have Buy ratings on Microsoft, 10 have Holds on the stock, and 1 has a Sell. Analysts on Microsoft analysts have an average price target of $27.50.

Currently, the Street is looking for EPS of $0.32 and $12.37 billion in revs.

Now looking at some analysts opinions:

• Deutsche Bank analysts said, "We expect Microsoft to report results that might miss sell-side consensus estimates.The major focus will be on the launch of Win 7 on Thursday. We believe there is significant pent-up demand in consumer and enterprise customers." They continue, "Our positive thesis
  around Win 7 has been based on 3 key factors: 1) improved pricing in netbooks; 2) enterprise hardware cycle refresh; 3) potential software only upgrades." Deutsche Bank reiterated their Buy rating and $30 price target. Deutsche also raised their FY10 revenue, EPS, and free cash flow estimates to $58.5 billion, $1.66, and $18.6 billion from $57.3 billion, $1.58, and $16.6 billion.
  
  
• Goldman Sachs has a Buy on Microsoft and said: "PC and server sales rebounding, but 1Q risk still there. Recent data points suggest a rebound in PC units earlier than expected, which should push up Microsoft Client revenue, but September quarter upside will likely be limited by consumer and emerging markets outperformance and the revenue deferral into the December quarter from the Windows 7 Tech Guarantee. Investors are likely to be focused on the launch of Windows 7 (Oct. 22) and any commentary on initial uptake. In addition, both IBM and Intel have alluded to signs of life in the server market, which is also an important topline driver. We believe that Microsoft is very well positioned for CY2010 and would be buyers of the stock on any earnings related weakness."
  
  
• Collins Stewart reiterated their Buy rating on MSFT. CS analysts comment that they believe Microsoft has a strong pipeline of product into CY10, better than expected cost-cutting measures, and positive Internet business outlook. The commented that Microsoft's Bing search engine also had three
  positive months of market share gains. Collins sets their Q110 revs at $12.41 billion and EPS of $0.34.
  
  
• Auriga analysts have a Buy rating as well on Microsoft, and a price target of $30. The firm sees Q110 EPS at $0.31 and revs at $11.85 billion. Auriga is positive on the stock, stating that they see Microsoft having the most powerful product line in years, a probable increase in corporate PC spending
  in CY10, their channel inventories are at or near trough levels, and an increased focus on cost-control.

Microsoft will issue its Q1 results via press release at approximately 7:30 AM (EDT) on October 23, 2009, also the start time of its conference call. The call can be accessed from the company's web site at www.microsoft.com.

Stay tuned to StreetInsider.com's
Earnings section to see our analysis of the highly-anticipated quarterly results within seconds of their release.

Related Categories

Earnings
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Related Entities

• Deutsche Bank
• Collins Stewart

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