Over the next week 24/7 Wall St. will set mid-year price targets (June, 30, 2007) for the sixty most widely traded stocks. These targets will be based on past price performance, industry activity, forward projections of financial performance, outside analyst opinions, and research conducted for doing past articles on these firms. The price targets assume flat markets over the next six months. In other words, if the Nasdaq moved up 25% between now and mid-year, the target share price targets would probably be too low. If the market moved down by 20%, they would probably be too high.
Microsoft (MSFT). Microsoft shares have not traded above $35 since mid-2000. Over the last five years the shares are down 12%.
In 2007, Microsoft might finally get to be a growth stock again. The release of Vista and Windows 2007 are viewed by many industry analysts as the core engine to growth in MSFT revenue. IDC predicts that 90 million copies of the new OS could be sold in 2007. Office 2007 will also begin to move into the enterprise market.
Xbox, which several years ago was considered little threat to the Playstation franchise, Between early November and Christmas, NPD Research projects that Xbox 360 sold two million units. During the same period Playstation3 sold about 750,000.A second version of Xbox 360 is expected to be announced this month. The game console is Microsoft’s beach head in consumer electronics The company hopes to show through Zune multimedia player sales in 2007 that it can follow one hardware success with another.
Microsoft’s online unit has upgraded is search function. It continues to add features in an attempt to gain share from Yahoo! and Google. MSN is also beginning to sell advertising targeted by consumer behavior which could drive up the value of its ad inventory and give it an edge against AOL and Yahoo!.
Microsoft’s IPTV is now being deployed by AT&T and Verizon along with several large telecom companies overseas.
Microsoft’s core software business could be threatened by web based applications of spreadsheet and word processing software. Microsoft has introduced it own set of "software as services" products and may be able to hold off the threat from Google and large enterprise software companies including Oracle/
Microsoft has over $40 billion in cash and investments on its balance sheet, so if it has to address critical business opportunities through acquisitions, the ability to finance deals will not be an issue.
Factors that could raise price above forecast: If Vista and Office 2007 get off to a faster start than experts predict, the stock could make a strong run. Playstation3 sales could remain slow and Microsoft could pick up key share in the game platform market. If Google and enterprise software as services companies are slow into the market, Vista and Office sales could build a moat that will be more difficult for competitors to cross.
Factors that push the price below forecast: Nothing would hurt Microsoft’s shares like a poor sales start for Vista. If Google releases a strong web-based set of word processing, email, and spreadsheet tools, Microsoft’s sales of its key software products could be eroded. Playstation3 could sell well in the first two quarters of 2007 and push Xbox units below both Sony and Nintendo.
Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.
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