On Monday June 15th, Microsoft Corporation (NASDAQ:MSFT) excited the markets by presenting at the annual Electronic Entertainment Expo in Los Angeles, California. The company announced that it will be releasing ‘Halo 5: Gaurdians’ in late October and that the Xbox One gaming console will have backward compatibility for Xbox 360 titles. This will allow users to play old 360 games on the new console.
This news sheds a spotlight on Microsoft’s future as shares are at the lowest they have been since late April. The stock hit as high as $49.16 on April 28 and last closed at $45.83. The software giant soared in most of April, driven by an extremely impressive fiscal third quarter. Earnings beat consensus by 10 cents, coming in at 61 cents per share. Furthermore, revenue beat Wall Street estimates and beat the consensus of $21.7 billion. Despite having a decent performance in April, Microsoft shares have been trickling down ever since.
Rick Sherlund, an analyst at Nomura Holdings, is bullish on Microsoft. He rated the stock as a buy with a price target of $55 yesterday June 16th as the market opened. Sherlund stated, “Microsoft added they will not charge users for backward compatibility. We view this as a positive Xbox adoption. Sony currently charges a subscription fee for gamers to play old PlayStation 3 games on the PS4.”
In regards to Halo 5, Microsoft announced an expected release date on October 27th. At the E3 presentation the firm showed new gameplay footage, which included a new multiplayer mode. Sherlund stated, “We are modeling 1st party game revenue of $802 million in the December quarter (+111% y/y) and $1285 million (+23% y/y) for FY16 given positive tailwind from the expected launch of Halo 5.”
Combined, the game revenue along with a strong console quarter should provide enough investor confidence to take Microsoft on another rally.
Rick Sherlund currently has a total average return of +12.4% with an overall success rate of 69% recommending stocks. He has rated Microsoft 72 times since September 2011, earning a 63% success rate recommending the stock and a +9.4% average return per recommendation.