Do Microsoft Corporation (MSFT) Bulls Have It Wrong?

Microsoft Corporation (MSFT) is scheduled to launch its Windows 10 operating system tomorrow

by Alex Eppstein

Published on Jul 28, 2015 at 10:42 AM
Updated on Jun 24, 2020 at 10:16 AM

If you're a tech junkie, then you surely know Microsoft Corporation's (NASDAQ:MSFT) Windows 10 operating system is scheduled to debut tomorrow. Ahead of this event, MSFT is being showered with praise from several quarters.

Barron's
featured MSFT prominently in its most recent issue from over the weekend. In an interview with Ariel Investments' Rupal Bhansali (subscription required), the money manager waxed optimistic on the blue chip. "We all love consumer staples for their stability. Microsoft is an enterprise staple; it's a must-have for a business," Bhansali said. "It has also moved from a license-based model to subscription-based, which means a big portion of it sales are coming from multi-year, recurring revenue. This stability has not come at the expense of growth."

A separate article touted MSFT shares, saying they could rise 50% over the next three years, due to the company's transformation into a power in cloud computing. "The stock is a good deal," according to the author. Later, he adds, "Microsoft has generated cash flow with the steadiness of a consumer-staples company, while paying plump dividends and gobbling up its own stock. A year from now, shares could fetch $55, for a total return of more than 20% including dividends."

More broadly speaking, the majority of analysts consider MSFT a "buy" or better, with only two doling out "sell" ratings. Also, less than 1% of the stock's float is sold short, suggesting a general lack of skepticism.

This enthusiasm isn't uniform, however. In particular, option players have expressed doubts, and massive front-month put accumulations at underfoot strikes could be supportive in the short term. An unwinding of the hedges related to these positions potentially feeds into the bullish case.

Moreover, while Microsoft Corporation (NASDAQ:MSFT) recently sold off on its latest earnings report -- which included a $3.2 billion net quarterly loss -- it maintained its footing atop the $44 level -- site of its post-bear gap highs in late February and early March, as well as its post-bull gap lows earlier this month. In addition, support from its 80-week moving average could push the stock up the charts.

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