Friday, 24 January 2014

Microsoft - that US$36 level again

What is it about Microsoft and US$36?  Back in late October I noted that:

'All I know is that we are at big levels.  Look at the 10 year chart on Microsoft.  This US$36 level is kind of a big historic resistance for the shares'.

Did you see where it closed yesterday (Thursday)?  Yep...kicking around that US$36 share price again.

Despite the weak prevailing futures, Microsoft is called up 2% or so.  What is getting investors excited?  This headline on Seeking Alpha, just after the numbers were released, did not seem...that exciting:

'Microsoft offers in-line revenue guidance, cuts spending forecasts'
The financial summary was dull, especially in operating income and EPS.  Nothing strikingly good apart from, perhaps, unearned revenues which bode well for the future. 

Divisionally though, positive comments on the commercial segment (servers, systems, cloud) as well as the Xbox and the Surface tablet were noteworthy.  Putting the above and below charts together though and better revenues with a mixed readacross to the operating income line seems about right. 

So what about these spending cuts?  The company is owering its FY14 (i.e. June 2014) opex guidance range to US$31.2-$31.5bn from a prior US$31.3-$31.9bn, and cutting its FY14 capex budget by US$500M to US$6bn.

Back in October I worried that the Nokia handsets business purchase implied mixed-at-best use of capital.  The above comment shows better potential trends. 

This is the opportunity that Microsoft has - akin to Cisco or even an IBM or Intel - with a market cap of US$300bn (and an EV of around US$240bn - pre Nokia handsets division deal), the company has lots of scope to work its balance sheet.  At around a x9.3 EV/ebit rating today this opportunity is not baked into Microsoft shares fully. What we need to know is how is the new CEO...and what do they think. 

And that remains the enigma but opportunity with Microsoft.  The 3.1% dividend yield can be seriously augmented either directly or via a special dividend - and that should attract income types.  For capital growth centred investors though, the opportunity remains more mixed with the company working very hard to keep still...whilst having cash burning a hole in its pocket and a vacant next CEO chair. 

A visionary and charismatic CEO required, please. 


No comments:

Post a Comment