Saturday, January 19, 2013

Microsoft Slides As Goldman Downgrades To Neutral, Trims Ests

Goldman Sachs analyst Sarah Friar this morning cut her rating on Microsoft (MSFT) to Neutral from Buy, trimming her target on the stock to $28, from $32, and reducing her EPS estimates for the company.

For the June 2011 fiscal year, she goes to $2.30, from $2.39; for FY 2012, she now sees $2.65, down from $2.73; for FY 2013, her new estimate is $2.90, down from $3.02.

“We believe the intrinsic value of shares cannot be unlocked if the status quo remains, and we have increased caution near-term on a more elongated PC refresh cycle, combined with the newer threat of notebook cannibalization from tablets, where Windows does not yet have a presence,” she writes in a research note. Friar notes that since she added the stock to the firm’s Buy list on August 12, 2008, the stock is down 13%, while the S&P 500 is down 11%. (Not the best call, obviously.)

She notes that MSFT has suffered significant multiple compression this year despite an 11% rise in consensus calendar 2011 EPS estimates. “Concerns over the longer-term sustainability of the� Windows/Office franchise have clearly weighed on the stock,” she writes. “However, this is not just a 2010 phenomenon: since 2002 Microsoft has had a -8% return on a dividends-reinvested basis, the second-worst of the largest dividend paying tech stocks. For the shares to unlock value, we believe a call to action is in order.”

Friar’s suggestions:

  • A material boost to the dividend beyond the recent 23% rise – enough to put Microsoft among the top 20 dividend paying companies in the S&P 500 in terms of yield.
  • A “coherent consumer strategy” that could involve paring back investments or divesting more peripheral assets like gaming.
  • Market leadership in cloud computing.

MSFT this morning is down 41 cents, or 1.7%, to $23.97.

No comments:

Post a Comment