Microsoft Shares Do Not Appear Cheap, Says Deutsche Bank


In a research note released Monday, Deutsche Bank analyst Karl Keirstead reaffirmed a Hold rating on Microsoft (NASDAQ:MSFT) with a price target of $44, which represents a potential downside of 6% from where the stock is currently trading. The report follows the company’s 1Q15 earnings, beating the analysts’ expectations on both revenue and EPS fronts.

Keirstead noted, “Following the recent earnings call from Microsoft, there was more investor buzz about the disappointing December quarter revenue guidance (which missed Street estimate by ~$2 billion) than there was about the September quarter results. The current Street estimate range for MSFT’s FY15 revenues is wide, ranging from $95-$102 billion, in our view reflecting the greater number of variables to consider (year-ago non-recurring items, the state of the PC market, the magnitude of the prior period XP lift). In this note, we examine MSFT’s guidance in some detail in order to judge how conservative it really is.”

Bottom line, “MSFT’s results are now being impacted by tough PC compares, the mix shift to subscriptions and hardware-driven margin pressure. At 17-18x our revised FY2015 adjusted EPS estimate of $2.67, MSFT shares do not appear cheap. Upside risks include better than expected margins and downside risks include a greater-than-expected revenue growth deceleration.”

According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Karl Keirstead has a total average return of 7.6% and a 57.4% success rate. Keirstead has a 9.8% average return when recommending MSFT, and is ranked #749 out of 3355 analysts.