SSB:BUY,trg $135,possible settlement,strong PC shipment, will be viewed as Internet co,Q1 is time to BUY
Excerpts from Salomon Smith Barney 3/1/00 follow:
03/01/00 Microsoft Corporation (MSFT $89.37,1-M,Tgt $135.00) Neil J. He
--SUMMARY:--Microsoft Corporation--Server & Enterprise Software
**Recently shares of Microsoft have been weak because of rising interest
rate, antitrust concerns, questions about when Windows 2000 kicks in,
concerns about PC demand, and debate whether Microsoft can fully leverage
the power of the Internet.
**We believe all of these issues are more than reflected in the current
stock price. We feel confident in our earnings estimates and believe
Windows 2000 will be a huge product cycle for Microsoft.
**Reiterate Buy rating
***Antitrust Settlement Possible
We continue to believe that greater than a 60% probability exists that
Microsoft and the Justice Department will reach a settlement in the
antitrust case prior to Judge Jackson's ruling on the Conclusions of Law,
which is expected at the end of March or in the April timeframe. We
believe that the Wall Street consensus view is that Microsoft will lose
this phase of the trial and we believe this has been fully reflected in
the stock price. If, in fact, the two sides settle, likely the day
before Judge Jackson is scheduled to pronounce his ruling, we believe the
shares of Microsoft will rise in a big way. Barring a settlement, we
expect Microsoft to continue to fight and believe the probability of any
eventual breakup of the company is extremely remote.
**Earnings Concerns And PC Shipment Concerns Overblown
Clearly, last quarter was not Microsoft's best as industry PC unit
shipment issues negatively impacted results. Early indications this
quarter is that corporate PC demand is regaining steam and we expect
strength throughout 2000. Microsoft also recently appointed a new CFO,
whom the Street is just now learning how to interpret, and may have
impacted some investors' confidence in this quarter. Interest rates may
also be impacting shares of Microsoft as large cap stocks with big
revenues and big earnings often feel the heat in rising interest rate
environments. Net/Net, we believe the PC growth demand picture and
long-term fundaments remain intact. While we do not see significant
upside to our earnings estimates for this quarter of $0.41 per share, we
are very comfortable with our projections.
**Will Microsoft Be Viewed As An Internet Software Company?
A Microsoft analyst meeting is likely to be scheduled for some time in
April, which should further solidify Microsoft's Internet vision among
the investment community. We believe Microsoft, today, is receiving no
credit for the company's Internet initiatives thus far. Behind AOL and
Yahoo, Microsoft's MSN collection of Internet properties often ranks
third in most Web hits each month. Microsoft also possesses over $20
billion in equity investments in cable, DSL, wireless and other Internet
infrastructure technologies that we believe is likely truly valued at
closer to $30 billion. We do not believe Microsoft is receiving credit
commiserate with its Internet initiatives today, but expect that to
change as the company further publicizes its plans and makes progress in
the Internet arena, particularly as offering software as a service. If
this happens, shares of Microsoft would likely experience P/E multiple
expansion.
**Windows 2000 is Here and It is For Real
Everything we head about Windows 2000 is that the product is extremely
solid. Wall Street is concerned about when the product actually catches
fire. We believe when the evidence rolls in, the stock will have already
moved. Our survey results suggest huge adoption of the product in
calendar Q3 and Q4, which means Wall Street should get wind of it in
calendar Q2. Therefore, to be ahead of the pack, Q1 is the time to play
the cycle, in our view. We continue to believe that significant upside
to revenues and earnings estimates exist over the long-term. Reiterate
Buy. |
