UPDATE: Bank of America Downgrades Microsoft on CEO Transition Risk

In a report published Monday, Bank of America analyst Kash Rangan downgraded the rating on

from Neutral to Underperform, but reiterated the $36.00 price target. In the report, Bank of America noted, “In our view, the substantial stock strength (+42% YTD vs. SP 500 +26%) driven by optimistic speculation around new CEO choice, possible emphasis on enterprise, divestiture of consumer businesses, and restructuring to drive $1 of EPS synergies above FY15 consensus EPS of $2.80 exposes investors to downside risks. Though not in consensus estimates, these synergies are widely anticipated by investors. The real issue amidst downward revisions, flat FY12-14 EPS, and declining margins is that regardless of CEO, investors must grapple with risk of undoing the ‘devices & services' strategy of an $80bn behemoth just when a major reorg has already been set in motion. On the other hand, trying to move quickly with the status quo strategy could burden the new CEO (while integrating Nokia) and disappoint investors. We see two stock scenarios in the near term in which we equally divide probability of CEO selection among 5 candidates (1 external and 4 internal).” Microsoft closed on Friday at $37.84.