Pacific Crest Hikes Microsoft Estimates On Reporting Clarification, Sees $55 Upside

In a report published Tuesday, Pacific Crest Securities analyst Brendan Barnicle maintained an Overweight rating on

, with a price target of $55. Microsoft announced that it would report pro forma results for FQ4 and guidance for FQ1 without including Nokia write-down costs and including the recognition impact of Windows 10. In the report Pacific Crest Securities noted, "Historically, Microsoft has reported GAAP results. Therefore, we have been modeling the impact from Windows 10 revenue-recognition and the Nokia write-down. But, apparently, Microsoft plans to report and guide in pro forma estimates." The EPS estimates for F2015 and F2016 have been raised from $1.41 to $2.43 and from $2.05 to $2.80, respectively. The FCF estimate for F2016 has been raised from $3.31 to $3.50. Barnicle said that the price target had remained unchanged since it was based on FCF, which was not impacted by the revenue recognition from Windows 10. "Microsoft has started to deliver on the changes it announced last year. The company is demonstrating a renewed financial discipline, and we expect accelerating growth in the core businesses," Barnicle wrote.