The Q3 results came in mixed. I think the positives were already priced in the run-up of the stock from the $28 (just on April 15); hence you saw a 6% drop today.
Microsoft has strong fundamentals in its core businesses and is in the midst of the largest upgrade cycle for its Windows Vista and productivity applications (Office 2007) in more than five years.
The forward 2009 guidance looks good. I think the overall PC market will resume its growth at 10-11% from the present 8-10% when the economy recovers next year. I'm looking for Microsoft to phase out Windows XP over the next year or two, and accelerate the Vista adoption process. At some point, the company will also start reaping back from their acquisition of aQuantitative. Look for Microsoft to start monetizing virtualization space as well.
There is clearly uncertainty about the Yahoo deal and I won't like Microsoft having to overpay here. There are risks for potential litigation in the US and EU as well as accelerated emergence of open source solutions which could dampen growth.
However, I think its stock price under $30 adequately reflects these risks as having been priced in. I don't think the growth party is over. For someone who has never touched the stock before, it's actually looking really interesting here. The stock currently trades at just under 14 times next year's earnings. After a decade of staying flat, I do think that MSFT is going to break out on the upside sometime over the next 12-16 months. My target price during that time horizon is $40 on a 2009 EPS estimate of $2.15.
I picked up some cheap Jan 2009 slightly out-of-the-money and very-beaten-down calls today to initiate a position.
Microsoft has strong fundamentals in its core businesses and is in the midst of the largest upgrade cycle for its Windows Vista and productivity applications (Office 2007) in more than five years.
The forward 2009 guidance looks good. I think the overall PC market will resume its growth at 10-11% from the present 8-10% when the economy recovers next year. I'm looking for Microsoft to phase out Windows XP over the next year or two, and accelerate the Vista adoption process. At some point, the company will also start reaping back from their acquisition of aQuantitative. Look for Microsoft to start monetizing virtualization space as well.
There is clearly uncertainty about the Yahoo deal and I won't like Microsoft having to overpay here. There are risks for potential litigation in the US and EU as well as accelerated emergence of open source solutions which could dampen growth.
However, I think its stock price under $30 adequately reflects these risks as having been priced in. I don't think the growth party is over. For someone who has never touched the stock before, it's actually looking really interesting here. The stock currently trades at just under 14 times next year's earnings. After a decade of staying flat, I do think that MSFT is going to break out on the upside sometime over the next 12-16 months. My target price during that time horizon is $40 on a 2009 EPS estimate of $2.15.
I picked up some cheap Jan 2009 slightly out-of-the-money and very-beaten-down calls today to initiate a position.
5 Comments:
Vista is dead
i kind of like it and use it, but it's dead in the market. HP and Dell are going to keep selling XP by using their downgrade rights in the contract. MS OS licenses say you can use the latest version or an earlier version. A lot of corporate IT departments don't want it because it's expensive and no one knows how it will save them money. pretty much everyone on the internet hates Vista and the name is dumb.
XP is it until Windows 7 comes out next year or 2010.
i bet in 20 year people will notice a pattern where all MS OS's with names are junk and the numbered ones or letter codes like XP are the good ones. kind of like the odd numbered Star Trek movies being the bad ones
P.S. Microsoft's strengths now is business software. Dynamics, SQL Server and Visual Studio. Windows Server 2008 has a nice new security feature. And MS Office now has a bunch of server products that are the real money makers. I also hear Sharepoint is a lot better now than when it first started
MSFT is a monopoly and are fine unless GOOG or somebody else comes up with something to challenge them for much less money... GOOG is sure trying but has been unable to produce anything good enough yet.
Unless MSFT continues to branch out to sustain their revenues they are in trouble. They will not be able to charge these kinds of prices for what has become basic software like spreadsheets and email.
There other products will take much longer to challenge but it is something that MSFT investors need to keep on eye on.
makes me want to purchase a MAC big time.
VISTA - I have heard nothing but horror stories.
Dead stock anyways....
Focus on the ones that can grow: VISN, VIT, PWRD, RBCN, BIDZ, CYBS, GFA
GOOG is taking the same strategy as MS did when they first started, working from the bottom up.
Google apps are a joke for the Enterprise business market but for the mom and pop business that buys Quickbooks every year they are probably good enough. over the years GOOG will probably move up the food chain.
MS did the same thing. when they first started they were all PC/desktop apps. the first version of NT that was bought by businesses was NT 4.0 which came out in 1995. and that was a joke because it didn't scale up. now MS uses LDAP and that will scale as much as your hardware will.
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