Microsoft Corporation (NASDAQ:MSFT) has received a price target increase from a team of analysts at Nomura. Rick Sherlund, Frederick Grieb and Xiaoyan Zhang issued a report to investors today. They raised their price target for the stock from $32 per share to $38 per share and explained their thoughts behind the increase and exactly what kinds of changes are possible in the company’s near future.

Microsoft logo

They point out that shares of Microsoft Corporation (NASDAQ:MSFT) are relatively flat over the last 13 years. The stock is actually down 4.4 percent since May 2001, but the NASDAQ is up 51.6 percent. They compared the company to International Business Machines Corp. (NYSE:IBM), which shifted its focus to higher returns to shareholders over the last 13 years. That has pushed IBM’s stock up 72 percent.

Microsoft Shareholders Demanding More

One of the biggest catalysts for change the analysts see is the company’s shareholders. They expect shareholders to demand “a greater say in the direction of the company” and also to see better returns, possibly led by an activist investor (see below). They see a number of things that could be done by Microsoft Corporation (NASDAQ:MSFT) to improve its capital return plan.

For example, they said the company could double its dividend to yield approximately 6 percent “by providing tax on current foreign source income and paying this incremental cash flow out to shareholders.” Another possibility they see is for the company to apply U.S. income taxes “on previously accumulated foreign source income. In their estimates, this would free up an extra $46 billion that could be returned to shareholders, either through increased dividends or share buybacks.

Microsoft And Its Business Divisions

Nomura analysts also looked at whether Microsoft Corporation (NASDAQ:MSFT) should be more into the search business. They point out that the company never gained enough traction to show a profit in search through Bing, and they believe the company will lose about $1.3 billion on search in its June quarter. In their view, if Microsoft “could sell or even give Bing” to Facebook Inc (NASDAQ:FB) or Yahoo! Inc. (NASDAQ:YHOO), it could eliminate the operating costs associated with the division and receive a traffic acquisition cost to monetize the traffic received by Windows, Internet Explorer or Xbox.

They see that generating about $1 billion in profits and positive free cash flow. If that amount was returned to shareholders, they said it would add almost 1 percent incremental to the dividend yield.

Other areas of note in their report include the Xbox, which they don’t see as being very important for Microsoft. They see the possibility for Xbox to be a solid spinoff company for Microsoft or for it to be sold off to a company like Samsung. They don’t believe that the Xbox will be “profitable enough to move the needle that much at the company.”

Microsoft And IOS

The analysts also urged the company to put out Office for iOS, although Microsoft has said it won’t do it. They believe that Microsoft is being hurt by users’ use of alternative programs like Google Docs because it won’t put out Office for iOS. In their view, Office should become a focus “independent of Windows” so that both products don’t suffer as the adoption of tablets increases.

Will Investors Go Activist On Microsoft?

Finally, the analysts took a look at what might happen if investors went activist on Microsoft like some have on other companies. They point out that Bill Gates keeps reducing his ownership and now owns just 4.8 percent of the company. CEO Steve Ballmer has 4 percent.

The top 10 shareholders of the company other than Gates and Ballmer only own about 26 percent. In order to get to 50 percent majority control, the top 80 shareholders other than Gates and Ballmer need to be added up.

Nomura analysts point out that the biggest shareholders don’t tend to be activist, but they could become advocates should a firm like ValueAct Capital, which is likely in the company’s top 20 shareholders. ValueAct Capital only recently disclosed its 1 percent stake in Microsoft, and the firm does have a history of becoming involved in the companies it invests in.

In their view, ValueAct Capital could advocate for changes that would equate to greater shareholder value, possibly starting with a request for one or two seats on the company’s board.