Microsoft Corporation (MSFT) Downgraded To Hold By Stifel

0
Microsoft Corporation (MSFT) Downgraded To Hold By Stifel
efes / Pixabay

Analysts at Stifel Nicolaus downgraded their rating for the shares of Microsoft Corporation (NASDAQ:MSFT) from Buy to Hold, and they also removed their price target of $36 for the stock.

Microsoft Corporation (MSFT) Downgraded To Hold By Stifel

Stifel Nicolaus analysts Brad Reback and Arvind Rajamohan said that they are increasingly concerned about the “pricing-pressures and heightened Windows S&M expenses,” which might serve as strong headwinds to the EPS and revenue growth of Microsoft Corporation (NASDAQ:MSFT) over the next years.

Baupost’s Seth Klarman Suggests That The U.S. Could Be Uninvestable One Day

Seth KlarmanIn his 2021 year-end letter, Baupost's Seth Klarman looked at the year in review and how COVID-19 swept through every part of our lives. He blamed much of the ills of the pandemic on those who choose not to get vaccinated while also expressing a dislike for the social division COVID-19 has caused. Q4 2021 Read More

The analysts said that despite the fact that the software business (MBD & S&T) and enterprise story of Microsoft Corporation (NASDAQ:MSFT) is robust and worth ~$33-$34 per share, they believed that the headwinds confronting Windows are stronger than they expected in the past few months.

Analysts feel consensus estimates for Microsoft are too high

In addition, Reback and Rajamohan think that the current consensus EPS and revenue estimates of Wall Street analysts for the software giant for 1Q14 and FY1414 are too high. According to the analysts, the consensus estimate for the September quarter of Microsoft Corporation (NASDAQ:MSFT) is mis-modeled as the software giant highlighted “low teen” growth for OPEX during its conference call last month.

The analysts noted that the consensus EPS estimate for Microsoft Corporation (NASDAQ:MSFT) for 1Q14 is $0.57, which represents a modest single-digit OPEX growth, but higher than their $0.49 EPS estimate. According to Reback and Rajamohan, they increased their 1Q and FY14 OPEX forecast. They said, “We expect the quest to regain Windows market share to regain the trump spending discipline during FY14.”

Reback and Rajamohan projected that Windows ASP will decline from its current level at ~$43 to ~$39 in FY15 as Microsoft Corporation (NASDAQ:MSFT) tries to stimulate core PC demand, increase the market share of its tablets, and due to the slowdown of corporate upgrade cycle.

According to the analysts, the stock price of Microsoft Corporation (NASDAQ:MSFT) which is still around $33 to $34 per share, is supported by the MBD, S&T businesses and the available cash of the company.

Analysts list positive indicators for Microsoft

In addition, the analysts anticipate that the management of the software giant will increase the company’s dividend payout by 5% to 10% by September. According to them, the increase will be modest because of the growing CapEx requirements of Microsoft Corporation (NASDAQ:MSFT).

Furthermore, Reback and Rajamohan opined, “We also think MSFT’s decision to more aggressively move Office to iOS/Android, any shareholder activism, and favorable changes to tax repatriation could also be a positive for the stock.”

The analysts reduced their 1Q EPS estimate for Microsoft Corporation (NASDAQ:MSFT) to $0.49 to reflect a higher OPEX. For the full fiscal 2014, they projected that the software giant will deliver $2.57 EPS on $81.99 billion revenue. Their fair valuation for the stock is $32.87 per share based on ~12x CY14E EPS of $2.77, slightly in line with its large cap peers trading at 12.3X.

Updated on

No posts to display