Friday, September 15, 2006

Calls of Note Part 1

- Goldman Sachs is positive on Microsoft (NASDAQ:MSFT) increasing their price target to $33 from $30 as the stock should benefit from a rich flow of upcoming new products and share repurchase. Feedback on Windows Vista RC1 continues to be encouraging with the company maintaining a January 2007 release date. The firm has modeled a delay to March following the May release of Beta 2, but RC1 is a big improvement, and a second delay is looking less likely. Microsoft also raised its quarterly dividend by $0.01 to $0.10, in-line with their expectations, and currently a 1.5% yield. Finally, Microsoft announced its first Zune portable media player with 30 GB of capacity, wireless, FM tuner, and 3" screen for video.

For Zune, they view Microsoft's strategy encompassing community and social networks as appealing, but Apple's dominant market position and the stickiness of its iTunes service is likely a market share constraint. Xbox still looks like a winner versus Sony's PS3 and losses are narrowing rapidly and operations are expected to be profitable a year from now.

Microsoft stock trades at 16X calendar 2007 EPS estimate of $1.62, a slight premium to the S&P 500. Goldman believe a strong product cycle including Windows Vista and Office 2007 as well as Xbox 360 will continue to drive revenue and EPS growth.

Notablecalls: Expect the note to create some further interest in MSFT in the pre mkt. Overall however, I suspect Goldman is late to the party.

No comments: