Jefferies Keeps $40 Target On Microsoft Following Phone Restructuring

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Microsoft Corporation MSFT announced Wednesday a major change to its smartphone hardware business. Microsoft said it will "streamline" its smartphone hardware business, which will impact up to 1,850 jobs. The company will record an impairment and restructuring charge of around $950 million, $200 million of which will be allocated toward severance payments.

The charges will be recorded in the fourth quarter of 2016, and the actions associated with the announcement are expected to be fully completed by July 2017.

"We are focusing our phone efforts where we have differentiation — with enterprises that value security, manageability and our Continuum capability, and consumers who value the same," said Satya Nadella, chief executive officer of Microsoft. "We will continue to innovate across devices and on our cloud services across all mobile platforms."

On Wednesday afternoon, Jefferies came out with a positive note on the news.

"We view the move as a positive in that it is the continued recognition of a mistaken strategy. We are increasing our estimates to reflect a reduced operating expense base. Our PT remains $40 based on the average of our 5 DCF scenarios and we maintain our Underperform rating," the note said.

"We are not changing our Phone revenue estimates at this time. F4Q16 Phone guidance implies a 47%+ yoy revenue decline as the company works through its Lumia channel position. We may reassess following earnings on July 19," the note continued. "We increase our FY17 EPS estimate to $2.83 from $2.80 to reflect the lower operating expenses."

Shares closed Thursday at $51.89, down 0.44 percent.

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Posted In: Analyst ColorReiterationAnalyst RatingsTechJefferies
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