Market Overview

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

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

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

Related Link: It Only Took 16 Years, But Microsoft Within Cents Of New All-Time High

"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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Latest Ratings for MSFT

Jun 2019MaintainsUnderperform
Jun 2019MaintainsBuy
Apr 2019MaintainsStrong BuyStrong Buy

View More Analyst Ratings for MSFT
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