Microsoft: Some Analysts Say To Buy Ahead of Earnings

You ought to consider picking up some Microsoft (MSFT) shares ahead of the company’s fiscal fourth quarter earnings report due after the close on Thursday. At least, that’s the view of several analysts who have penned reports on the company previewing the results. The Street consensus is for $15.65 billion and 47 cents. Microsoft’s guidance for the quarter was for revenue of $15.5 billion to $15.8 billion, with profits of 45-48 cents a share.

Microsoft’s March quarter numbers were not well-received; while Xbox 360 sales were strong, results from the Windows business were shy of expectations. The disappointing quarter, combined with investor confusion over the company’s hot-and-cold interest in Yahoo (YHOO) have pressured the stock, which is down 17% since the last earnings report.

Donovan Gow, an analyst at American Technology Research, this morning asserted that the stock offers “an excellent buying opportunity.” He expects June quarter results to be in-line to slightly higher versus guidance, with no change in June 2009 full year guidance of revenue of $66.9 billion to $68 billion with profits of $2.13-$2.19 a share. Gow contends the key metric will be growth in the Windows business, which he thinks will rebound from the weak March quarter. He also expects strength in the entertainment and devices division and from servers. “The stock is heavily undervalued on overly bearish sentiment” on Windows growth and the Yahoo situation, he says, “while fundamentals remain strong.” He maintains a Buy rating and $38 price target.

Oppenheimer’s Brad Reback wrote yesterday that MSFT shares are “attractive short term” heading into earnings. “While we believe some long-term issues remain, we expect the company to post at least in-line results and reiterate its FY ‘09 outlook.” Given the stock’s discount versus both the S&P 500 and its large-cap peers, he says “we would be buyers of its shares ahead of its Q4 results.” He notes that the stock trades at just his 11x calendar 2009 estimate of $2.32, below the S&P at 12.5x, and large-cap software at 14x.

Charles DiBona, an analyst with Bernstein Research, thinks the company’s fourth quarter results and the forward guidance will provide the starting point for a revival in the stock’s reputation. He expects the Client division - i.e., Windows - to accelerate from the weaker-than-forecast March quarter. He sees 10.6% year over year growth in Client revenue in the quarter, with 16.7% for the Microsoft Business Division, which includes Office, 18.2% growth in server and tools revenue, 30.9% growth in entertainment and devices and 38.8% growth in online services. He expects no change in the company’s ‘09 guidance. “Overall, we continue to believe that MSFT’s share price undervalues the true growth potential of the company and view this as one of the most compelling long-term investment opportunities in our coverage,” he writes.