Goldman Sachs analyst Heather Bellini downgraded Microsoft from Neutral to Sell (relative to their coverage) with a $27 price target (currently at $28.75, down $1.53 or 5%) due to a worsening PC trends and lack of traction in tablets and smartphones.
The Goldman Sachs hardware team is expecting the PC share of the PC and tablet combined market to decrease from 73% in 2012 to 65% in 2013 (previously 67%) to 59% in 2014 (previously 63%).
Source: Goldman Sachs
CJ Takeaway: With the decline in the PC market that Gartner and IDC published yesterday combined with the continued weak demand for Windows 8 and its Surface tablets it is not surprising to see downgrades on Microsoft. With the stock being essentially flat over the past ten years, few catalysts and increased competitive pressure the shares are probably range bound for the near to medium future.
Source: Yahoo! Finance
Bellini does lay out four “Plan B” options with probabilities:
1) Break up the company
- Even with a $37 sum of the parts valuation it has low odds
2) Leverage offshore cash/increase debt
- This is fairly easy to execute given the company’s strong free cash flow. Low to medium odds.
3) Use subsidies/cut prices to reignite growth
- GS does not think this will stimulate demand and gives it medium to high odds.
4) Reduce expenses
- There is some overhead that could be cut but with competitive pressures on many fronts there are limits. GS gives this low to medium odds.
Disclosure: My family and I own Apple shares
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