UPDATE: Nomura Upgrades Microsoft Following Addition to Buy List

In a report published Thursday, Nomura analyst Rick Sherlund upgraded the rating on Microsoft Corporation MSFT from Neutral to Buy, and reiterated the $38.00 price target. In the report, Nomura noted, “MSFT was removed from our Buy list in April on poor fundamentals, but we are now adding it back on anticipated benefits of shareholder activism. ValueAct owns under a 1% position, but is likely to have support of shareholders weighing in on their side as they press for a Board seat and attempt to drive greater shareholder value. News of a proxy contest might be a near-term catalyst (there is a requirement to notify Microsoft by August 30th if there is an intent to fight a proxy battle), but a decision by the board at Microsoft to offer a nomination for a board seat could keep the activist agenda behind closed doors and take longer for shareholders to see potential benefits. Fundamentals will be front and center at the September 19th Financial Analyst Meeting (‘FAM') We think estimates will likely be talked lower on lower gross margins (we are reducing our EPS estimate from $2.75 to $2.60 for fiscal 2014 in anticipation), but there are some benefits over time from the transition to a subscription model.” Microsoft Corporation closed on Wednesday at $31.61.