Microsoft Analysts Shrug Off Tech Giant's Coronavirus Warning: 'A Temporary Dynamic'

Microsoft Corporation MSFT is the latest tech company to warn of a possible shortfall due to the COVID-19 virus outbreak.

The Microsoft Analysts

Morgan Stanley analyst Keith Weiss maintained an Overweight rating on Microsoft with a $200 price target.

Wedbush analyst Daniel Ives maintained an Outperform rating and $210 price target.

Mizuho Securities analyst Gregg Moskowitz maintained a Buy rating and $195 price target.

Morgan Stanley Does The Math On COVID-19 Impact

Notwithstanding the anticipated hit to Microsoft's More Personal Computing segment, the company's underlying demand trends remain firmly intact, Weiss said.

Microsoft kept all the other components of the guidance intact, while acknowledging the impact of the new coronavirus is more pronounced on the supply chain for Windows OEM and Surface devices, the analyst said. 

Microsoft did not quantify the impact given that the situation is still in flux, he said. 

Derisking the MPC numbers for the updated guidance, Weiss shifted $500 million of revenue form the third quarter to the fourth, which in turn shaved 3 cents per share from the third-quarter EPS estimate and added it to the fourth-quarter estimate, the analyst said. 

Quantifying the segment impact, Morgan Stanley said that of the $47 billion in MPC segment revenue estimated for 2020, Windows OEM represents 27% and Surface 13% of the total.

Assuming gross margins of about 90% for OEM revenues and 15% for Surface, the overall gross margin impact should be negligible provided the revenue impacts are felt proportionately to the overall revenue mix, Weiss said. 

"As a rule of thumb, every $100 million of revenue impact at Microsoft represents an $0.01 quarterly impact on EPS." 

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Wedbush Sees 'Temporary Dynamic,' Not 'Longer-Term Worry'

With the MPC segment accounting for roughly one-third of Microsoft's revenue, it is clearly a focus for the Street, Wedbush's Ives said.

Yet the analyst said he believes many investors will look past the issue, viewing it as "a temporary dynamic [rather] than a longer-term worry."

The company continues to see the demand it accounted for, but the supply chain is returning to work at a slower pace than originally expected, impacting Windows OEM and Surface, he said. 

"In a nutshell, Microsoft firmly remains our favorite cloud play for 2020 and beyond; despite the bad news from the PC/supply chain (which we view as temporary) this does not change our bullish thesis around Azure's growth and the longer-term prospects for Redmond over the coming years."  

Mizuho's Checks On Microsoft Remain ‘Very Positive'

Microsoft's warning is clearly disappointing news, but the company is well-positioned and the primary growth drivers such as cloud remain intact, Moskowitz said.

The analyst sees Azure, in particular, as becoming more powerful, with the recent Department of Defense contract likely to open further opportunities with government agencies as well as increase Microsoft's overall momentum in IaaS/PaaS.

"And overall, MSFT is benefiting from its alignment with a number of important trends in software, including digital transformation, broader cloud adoption, and AI."

The firm said its ongoing checks on the company remain "very positive."

MSFT Price Action

Microsoft shares were slipping 3.88% to $163.58 at the time of publication Thursday.