Microsoft (MSFT): The Good, The Bad, The Neutral
Analyst Tom Ernst Jr of Deutsche Bank is bullish on Microsoft. He has a Buy rating on the stock with a price target of $31. He thinks the risk/reward in Microsoft is attractive and notes innovation in PCs, which could help stabilize Windows, long plagued by secular decline.
"We believe the availability of more touch based Windows devices, new form factors and increased distribution will help stabilize growth in the Windows segment. We are also encouraged by MSFT's cloud and SaaS initiatives, and the market share gain of Hyper-V and 5x y/y growth in Office 365 is a positive . . . Investors need to realize that very few companies can exhibit organic high single digit growth at this scale, and its valuation positions it for an attractive risk/reward. We are cognizant of the PC headwinds, but are encouraged by the strategic direction of the company, and the investments it is making in Cloud, SaaS, tablets and mobile," said Ernst.
Making the bear case is Goldman Sach's analyst Heather Bellini. Unsurprisingly, Goldman's Sell rating relates to weakness in PCs.
"As expected, Windows came in at $5.7bn, below consensus at $5.9bn due to continued soft PC trends and lack of material tablet traction, while S&T and MBD came in approximately $100mn and $200mn below the Street at $5.0bn and $6.3bn.We continue to believe Microsoft needs to aggressively try and spur adoption of its new mobility offerings while at the same time slow down the rate of secular decline in consumer PCs. While the enterprise-related business provides solid ballast, we believe revenue and earnings will continue to be biased lower," said the analyst.
Goldman has a Sell rating on Microsoft with a price target of $27.
Standing in the middle is Wells Fargo's analyst Jason Maynard, who sports a Neutral rating on Microsoft with a price target of $30 to $32.
"Microsoft remains the market leader in its Windows and Office product categories, and is benefitting from the corporate PC refresh cycle underway. However, we believe Microsoft's stock is reasonably valued in light of the competitive challenges in the Internet services and mobile device markets," concluded the analyst.