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Citi Cuts Rating On Microsoft Following Earnings

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Following Monday's disappointing earnings report, Citi cut Microsoft Corporation (NASDAQ: MSFT) from Neutral to Sell with a $38 price target. The price target represents a $12, or 24 percent, decline from Citi’s prior target.

Microsoft reported earnings inline with expectations at $0.71 per share on slightly higher revenue ($26.5 billion vs. $26.3 billion). The company’s commercial cloud division was the highlight, while Windows revenues were a severe drag.

Citi’s note mentions that Q2 revenues were driven by low-margin businesses. As a result, Citi is cutting its FY15 EPS estimate to $2.58 from $2.73, while also reducing FY16/17 estimates as well. Therefore, analysts expect the price to be unsustainable over $45 per share.

The $38 price target is based on a valuation of 12.5x forward free cash flow – a number Citi notes is “at the high end of historical levels."

Though the company is “effectively doubling” its share buyback, shares of Microsoft are selling off sharply in premarket trading, down 8.5 percent to $43 at present.

Latest Ratings for MSFT

Jan 2017Tigress FinancialUpgradesNeutralBuy
Jan 2017Wells FargoInitiates Coverage OnOutperform
Dec 2016PiperJaffrayInitiates Coverage OnOverweight

View More Analyst Ratings for MSFT
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Posted-In: CitiDowngrades Price Target Analyst Ratings


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