Pacific Crest Remains Overweight Microsoft Amid $950 Million Restructuring

Microsoft Corporation MSFT announced a $950 million restructuring plan for its smartphone business. Pacific Crest’s Brendan Barnicle maintained an Overweight rating for the company, with a price target of $65. The analyst said the restructuring charges indicated are “unsurprising,” and have no impact on the investment thesis for Microsoft.

Within the restructuring plan, Microsoft aims to eliminate 1,350 jobs at Microsoft Mobile Oy in Finland and an additional 500 jobs globally. The restructuring charge would be incorporated in the June quarter, F4Q16.

To Impact FCF

Analyst Brendan Barnicle expects the restructuring to be completed by the end of the March quarter, F3Q17 and a large part of the restructuring charges to be non-cash. Microsoft indicated that it expects $200 million in severance costs.

“The $50 million per-quarter reduction in cash flows is $0.006 per share per quarter. F4Q16 FCF remains $0.69 due to rounding, and our F2016 FCF estimate declines to $3.07 from $3.08. Our F2017 FCF estimate declines slightly to $3.35 from $3.37. Our non-GAAP EPS is not impacted by the restructuring,” the analyst wrote.