PacCrest Lowers Microsoft Estimates, But Considers It Best-Positioned To Transition To The Cloud

• Shares of Microsoft Corporation MSFT have appreciated 24.3 percent over the past three months, almost touching their 52 week high on December 16, at $56.13.
• Brendan Barnicle of Pacific Crest has maintained an Overweight rating on the company, with a price target of $65.
• The estimates have been lowered to reflect a more realistic view, as well as FX headwinds and gross margin pressures, although Barnicle believes that there could be upside to the valuation.

Analyst Brendan Barnicle explained that he remained constructive on the growth of PCs and Windows 10 during Microsoft’s 2HF16, and believed that the company “continues to be the best-positioned legacy software vendor to make the transition to the cloud.”

Barnicle also mentioned that most investors were “fairly positive” on the stock, although there still were concerns regarding the future of PCs.

Pacific Crest’s revenue estimates for the company’s More Personal Computing business are well above the consensus forecasts, with a more constructive view of PCs.

In FQ1, Window 10 grew faster than PCs, although according to Barnicle, “Microsoft does not expect the same ASP benefit,” for the second half of its fiscal 2016. The estimates have therefore been lowered.

The F2016 EPS estimate has been lowered from $3.00 to $2.78, although this is still above the consensus expectation of $2.77. For FQ3, however, the EPS estimate of $0.66 is lower than the consensus of $0.68.