Street Sees Solid Quarter for Microsoft

Microsoft (MSFT) shares are on the rise ahead of the company’s Thursday afternoon announcement of earnings for its fiscal third quarter ended March.

A number of analysts this morning weighed in the prospects for the quarter; note that the stock also could be buffeted by tomorrow afternoon’s earnings report by Yahoo (YHOO). A strong Yahoo report could force MSFT to up its current $31-a-share stock and cash offer; a higher bid would likely pressure MSFT shares. But a weak Yahoo report could make it easier for MSFT to complete its offer at the current price, or even lower.

One key reason for optimism: reports that Q1 PC sales were better than expected.

The consensus for the March quarter is revenue of $14.49 billion and EPS of 44 cents.

Here’s a rundown on some of today’s MSFT chatter:

• Brendan Barnicle, Pacific Crest: He says the company is likely to report upside to current estimates. He notes that currency alone could boost revs by $200 million, and perhaps as much as $575 million. Barnicle also thinks FY 2009 guidance could exceed conservative expectations. Barnicle actually trimmed his own EPS estimates, but remains above the consensus. For June 2009, he goes to $2.17 from $2.20, and for FY 2010 to $2.54 from $2.59. The Street sees $2.10 and $2.35, respectively. Barnicle maintains an Outperform rating.
• Laura Lederman, William Blair: She says the company should beat consensus estimates for the quarter. Lederman notes that 60% of revenue is from outside the U.S.; she notes that the company is still benefiting from product upgrade cycles in Windows, Office, SQL Server and Windows Server. Lederman maintains an Outperform rating.
• Charles DiBona, Bernstein Research: He’s look for EPS of 45 cents, a penny ahead of the Street; he sees $15.66 billion and 51 cents for the June quarter, and $66.65 billion and $2.16 for the June 2009 fiscal year. DiBona maintains his Outperform rating and $41 target on the stock, asserting that “even without YHOO…MSFT is well-positioned strategically versus its traditional competitors and in a reasonably solid position to fight off its newer rivals.” He contends the current stock price “undervalues the true growth potential of the company.”
• Todd Raker, Deutsche Bank: He maintains Buy rating on the stock, but today cut his price target to $36 from $41, due to uncertainty over the Yahoo bid; he points to potential dilution if the deal closes. He also says that tougher comps in its entertainment and devices division could limit stock upside.
• Sarah Friar, Goldman Sachs: She sees a number of fundamental catalysts for the stock stock near term, noting that the stock trades at 15x calendar ‘08 and 13x CY ‘09, versus 21x and 17x for the software group and 18x and 17x for the S&P 500. On the other hand, she also notes that macro economic concerns could slow enterprise adoption of Vista.

MSFT today has been up 40 cents, or 1.3%, to $30.60.

Comments

[User 154359]

Q: If Yahoo board knows earnings will be "bad", wouldn't they try to make a deal with MSFT before that earnings report will be released

[WAKEUP]

What if Yahoo continues to "just say no," regardless of anything else? Will we be reading about this little personality conflict, for the rest of our investing lives?