"Microsoft (NASDAQ: MSFT), a holding on our buy list, was added to Goldman Sachs' Conviction Buy List," says Bill Martin. In BullMarket.com, he offers the reasoning for his buy rating.
"Analyst Sarah Friar at Goldman raised her price target on the name to $29 from $25.
"She said,'"We are adding Microsoft to our Conviction List as we think the combination of better revenue drivers, improved expense management, and sizeable cash balances provides more opportunities for bottom-line beats.'
"'Windows 7, Windows Server 2008 R2, Bing, Xbox 360 and new Halo content, Office 2010, and the Azure Cloud provide renewed innovation beyond anything we have seen in multiple years,' Friar wrote.
"She added, 'Looking out to CY2010 and beyond, the new product pipeline, combined with a modest rebound in IT spending, should buoy top-line growth. The stock remains under-owned by growth managers, providing further buying power.'
"While Friar is bullish on Microsoft, she isn't expecting a great June quarter due to the current IT spending environment. However, she believes investors will soon start to look beyond 2009 and towards higher growth rates from the 2010 Windows 7 product cycle.
"She said the biggest risks the stock faces are a prolonged weak economic environment and a more rapid than expected shift to software as a service (SaaS) offerings.
"In our view., Microsoft has been a hated company and reviled stock for years. However, it is currently an inexpensive stock (P/E around 13x) with a strong balance sheet and a clear catalyst (the Windows 7 launch).
"Yes, the ten-year chart may look like the stock flatlined on the operating table, but we think it may finally be ready to show some signs of life.
"Windows 7 is getting good early reviews (when was the last time that happened?), and if the company can make bundles of money selling products that many people don't particularly care for, a product end users actually like could do wonders for the bottom line and the stock.
"Throw in Microsoft cutting some fat after years of getting a bit bloated, and you have a stock that is a 'Buy.' Our Target is $30."
