Goldman Still Selling Microsoft

• Microsoft Corporation MSFT shares have been highly volatile year-to-date, and have jumped 10 percent since September 23.
• Goldman Sachs’ Heather Bellini maintained a Sell rating on the company, while raising the price target from $40 to $45.
• The company reported its F1Q16 results broadly better than expected and its mix appears to be evolving, Bellini said.

Microsoft reported its F1Q16 non-GAAP revenues at $21.7 billion, representing a 7 percent y/y decline and a 2 percent decline in constant currency terms. Despite the decline, the revenue figure was higher than the consensus estimate of $20.7 billion, down 11 percent y/y.

The company’s non-GAAP EPS came in at $0.67, beating the consensus expectation of $0.58. Opex was down 7 percent y/y at $7.39 billion, and was below consensus of $7.7 billion and guidance of $7.6-$7.7 billion. Operating margin was at 32.7 percent, better than the consensus expectation of 29.6 percent.

Microsoft guided to F2Q16 revenue of $24.8-$25.4 billion, representing a y/y decline of 4-6 percent. The consensus was at $24.8 billion. “But given the revenue mix, gross margin guidance was just under 200bps below consensus and we estimate an implied EPS range of $0.68-0.71 (Street: $0.72),” analyst Heather Bellini stated.

In the report Goldman Sachs noted, “For FY16 we lower our revenue forecast in higher margins businesses (PBP and IC), but raise our revenue forecast in the lower margin MPC business, specifically Xbox and Surface.” The EPS estimate for FY16 has been raised by $0.11.