Deutsche Bank Trims Estimates For Microsoft, Worried About Weak Guidance

In a report published Tuesday, Deutsche Bank analysts Karl Keirstead and Imtiaz Koujalgi reiterated their Hold rating on Microsoft Corporation MSFT, after the company reported fiscal second-quarter results. The price target was fixed at $44.

According to the report, Microsoft’s weak guidance for the third quarter of fiscal 2015 that worries the firm.

Consequently, the analysts trimmed their 3QF15 GAAP EPS estimate to $0.48, from $0.61.

Related Link: Microsoft Takes 'A Step Back In The Journey Forward,' Credit Suisse Says

For fiscal 2015, Microsoft “is facing a confluence of growth rate pressures, including two more quarters of tough Windows and Office comps given the unusual year-ago lift from XP migrations, a projected 4% FX hit in 3QF15, geo pressures in China and Japan and a license-to-subscription mix shift, especially for Office 365. The period of unusual top-line out-performance in FY14 is being reversed in FY15. The challenge for the stock is that this is not being fully offset by margin upside.”

Bottom line, Deutsche Bank cut its FY15 GAAP EPS estimate to $2.33 (from $2.49), down 11.5 percent year-over-year.

Many investors expect a different picture for fiscal 2016, as tough compares and FX pressure will subside, and customers will increasingly shift to subscription-based Office. In addition, the company will accelerate its “planned buy-back to a pace of ~$3.5b per quarter over the next two years from an average of $2.5b over the last two quarters.”

While Deutsche Bank prefers the company’s setup for fiscal 2016, analysts still worry about Windows OEM ASPs’ downtrend, and about Windows 10 not being able to “provide the lift to PC unit sales as some are hoping.”