Wunderlich Reiterates Neutral On Microsoft, Cites Several Issues

• Shares of Microsoft Corporation MSFT have declined 6.49 percent, year to date, while rising 2.09 percent over the past month.
• Wunderlich’s Rob Breza maintained a Hold rating and price target of $50 on the company.
• While the PC market is expected to remain under pressure, the new product release could take time to have a significant impact, as customers assess the benefits of moving to Office 365.

According to the Wunderlich report, “While new product updates with new features are interesting, along with pricing, the key to product revenue growth is often the pull-through effect that new features have on adjacent products.”

Analyst Rob Breza explained that the primary focus of the Office 2016 release would be its “real-time co-authoring feature,” which is expected to improve collaboration in Word, PowerPoint and OneNote.

Other important features include the integration of Power BI, the company’s big data offering, into Excel, a built-in Bing search engine in Outlook and the facility add OneDrive files as attachments to emails.

However, global PC market has continued to decline, given that most of the market has been depending on the Windows 10 and Office 2016 releases to re-energize the segment.

Although a recovery in the PC market was not expected in the near term, overall market shipments in FY15 are expected to decline 8.7 percent despite the 2H15 numbers showing an improvement over the 1H15 levels.

While Microsoft’s stock has seen a pullback, following the 4Q earnings report, Given that the company’s shares have not historically been affected by product launches or releases, Breza does not expect any significant movement in the shares.

“Looking ahead we expect MSFT to be impacted by macro-economic factors such as FX fluctuations, as well as continued capital allocation initiatives as the company continues to focus on its transition to the cloud,” Breza added.