Microsoft: Morgan Stanley Ups Target to $37 on Office 15 Promise

By admin, March 25, 2012

Morgan Stanley’s Adam Holt this morning raised his price target shares of Microsoft  to $37 from $33, writing that the stock, trading at just 11 times the next twelve months’ projected earnings, is failing to reflect prospects for the next version of Office, version 15, which will likely be available not just on Intel  processors but also for versions of Microsoft’s operating system running on chips based on ARM Holdings‘s  architecture.

That could give Microsoft a big boost in tablet computers and other mobile devices running the forthcoming Windows 8, versus Apple‘s  iPad, thinks Holt, as Office 15 is not likely to show up on the iPad, at least not initially.

Microsoft is updating Office along with other parts of the Office family, he notes, including SharePoint, Lync, Exchange, and the “cloud” version, Office 365. He describes Office’s importance thusly:

Office 15 is a revolutionary product release that should allow MSFT to make headwinds in the tablet market by better targeting those who want a mobile device with a high quality consumption experience as well as full productivity features. MSFT has announced that at least four Office 15 applications will be optimized for Windows 8 on ARM and these applications (Word, Excel, PowerPoint and OneNote) will be in the traditional Desktop-style, versus the new “Metro-Style” that characterizes the new tablet-friendly interface of Windows 8. However, MSFT noted that both versions will be significantly architected for touch centric devices and to minimize power and resource consumption. Windows on ARM tablets with Office will likely expand the market for tablets in the enterprise and MSFT should be well positioned to take share, particularly from Android tablet devices, which not only lack Office but also present security and manageability concerns. We also think the integration with conferencing and collaboration for MSFT can be a differentiator.

Holt raised his calendar year 2013 profit per share estimate to $3.34 from $3.26 to reflect higher results in the “Business Division,” or MBD, that contains Office:

MBD revenue growth of only 6.5% in FY13 is likely too low, particularly given Win 8 as a driver and incremental opportunities around Win 8 tablets. Assuming a Fall 2012 release for Office 15, MBD revenue growing 10-20% in CY13 would add $0.08-0.32 to EPS in CY13, or 2-10% upside to our prior CY13 EPS estimate of $3.26.

For the fiscal year 2013 that ends in June of next year, Holt raised his estimate to $80.7 billion in revenue and $3.14 per share in profit from $79.6 billion and $3.08 previously. He notes there are other “catalysts” that can help the stock, and that are helping to lift estimates, including Windows 8 itself, as well as the 2012 version of Microsoft’s SQL Server database product.

The Street consensus for fiscal 2013 is $3.02 at the moment.

Moreover, the stock multiple is still low, thinks Holt, given past history in the run-up to a major Microsoft system introduction. With Windows 8 coming out sometime later this year, writes Holt, the stock’s multiple has only risen from 9 times to 11 times this year so far. But,

During the Windows 7 launch in Oct. ’09, MSFT’s NTM P/E multiple appreciated 30% from April ‘09 to the Win 7 launch in Oct. ’09 with a peak multiple of >15x NTM EPS, while on average for the XP, Vista and Win 7 launches, MSFT has outperformed the S&P500 in the six months prior to a Windows launch by 14%.

Microsoft shares are down 7 cents at $31.84.


Related posts:

  1. Microsoft Office 2012 Begins Technical Preview: Tablet Readiness Questioned
  2. Six Features You’ll Love in Office 15
  3. Microsoft Office 15 apps to include ‘touch mode’
  4. Microsoft Office 2012 Technical Preview Review
  5. Microsoft Office 15 for Windows 8 Comes With SkyDrive, Full-Screen Mode, Touch

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