Anxious Argus And The Gap In Microsoft's Product Mix (RIP, Windows Phone)


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Argus remains concerned with the "large hole" in Microsoft Corporation

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(NASDAQ: MSFT)'s product line left by the slow demise of the Windows phone.

"Without a clear mobile strategy, Microsoft again risks falling behind nimbler competitors," analyst Joseph Bonner wrote in a note.

Argus reiterated its Hold rating on Microsoft following its fourth-quarter results, which showed that the company is seeing strong growth in its cloud and commercial services businesses.

Recent Performance

Microsoft's fourth-quarter earnings beat the consensus EPS estimate by $0.11. Adjusted revenue rose 2 percent to $22.64 billion, driven by Microsoft Azure, cloud services products, and Office commercial and consumer products.


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"Currency translation remained a significant drag on Microsoft's results in the June quarter; however, management expects these headwinds to diminish to about 1 percent in 1H17 and to zero in 2H17 if rates remain stable," Bonner said.

Expectations And Estimates

For the first quarter, Microsoft projects revenue of $21.55 billion at the midpoint of its guidance range, in line with the prior year. The analyst raised his FY17 EPS forecast to $2.92 from $2.85 and set a FY18 EPS target of $3.11.

Microsoft pays a quarterly dividend of $0.36, or $1.44 annually, for a yield of about 2.7 percent. Argus cut its FY17 dividend estimate to $1.44.

Microsoft bought back $16 billion of its stock in FY16, and the share count declined 1.6 percent year-over-year in the fourth quarter.

The analyst expects continued robust share repurchases from Microsoft.

According to Bonner, with a trailing enterprise value/EBITDA multiple of 14.2, Microsoft trades above the peer median of 11.4 and above the high end of its five-year historical range of 8.3-10.3. Microsoft's forward enterprise value/EBITDA multiple of 10.7 is 26 percent below the peer average, less than the average discount of 38 percent over the past two years.

Microsoft shares are up 2 percent year-to-date versus 5.5 percent increase for the S&P 500. They were seen up 1.24 percent to $56.49 at time of writing.

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27% profit every 20 days?

This is what Nic Chahine averages with his option buys. Not selling covered calls or spreads… BUYING options. Most traders don’t even have a winning percentage of 27% buying options. He has an 83% win rate. Here’s how he does it.


Posted In: Analyst ColorEarningsGuidancePrice TargetReiterationBuybacksAnalyst RatingsTechArgusAzureJoseph BonnerMicrosoft AzureOfficeWindows Phone