Microsoft (MSFT) gets its second downgrade of the day today, from Pacific Crest’s Brendan Barnicle, who cut the stock to Sector Perform from Outperform. FBR Capital this morning cut the stock to Market Perform.
Microsoft reports earnings this Thursday after the bell.
Barnicle notes estimates for Microsoft’s fiscal Q1 that ended last month have been going down, but he still thinks the company could beat estimates, based on the upgrade cycle by corporations, which are still moving to Windows 7, of which Microsoft has sold a “stunning,” in his words, 240 million units in the last 12 months through last week. The entertainment division could do better than expected based on sales of the latest Halo installment, and there may yet be more cost-cutting by Ballmer et al.
But that’s a sell-into-strength opportunity, writes Barnicle. On the negative side, the company’s Q2 ending December will be tough, with revenue likely falling 1% on the anniversary of the first quarter of Windows 7 sales, he believes. And while investors are aware Q3 and Q4 could also be hard comparisons, they may not fully appreciate how bad it could be. He sees revenue growth of 10% for Q3 and 8% for Q4, but it could come in lower than that.
Moreover, he’s concerned about the executive departures: “The recent departures of Ray Ozzie and Stephen Elop [to Nokia (NOK)] are a blow to Steve Ballmer and Microsoft. The loss of these leaders only increases Microsoft’s challenges.”
MSFT shares are off 15 cents, or 0.6%, at $25.23 today.
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