Morgan Stanley Answers 'What Does Windows 10 Really Mean' For Microsoft

Keith Weiss of Morgan Stanley on Wednesday commented in a note that he needs "more clarity" to get more aggressive on shares of Microsoft Corporation MSFT ahead of the Windows 10 launch.

"The approximate 20 percent pullback from recent highs forces the question, ‘is this an opportunity for investors to get more aggressive on Microsoft or the start of a longer-term trend?', Weiss wrote. "With multiples now more in-line with peers (and again at a discount to the S&P), an approximate three percent dividend yield on a triple AAA credit rated asset and approximate 20 percent to our price target ($50), current valuation levels appear attractive."

In terms of Windows 10, Weiss states that concerns on the revenue impact of a free upgrade from Windows 7 and Windows 8 appear "over blown." The analyst adds that his Windows upgrade revenues contribution for fiscal 2016 is $300 million to $400 million, or $0.04 in earnings per share.

Weiss notes that a bigger concern is the potential for Microsoft's promise of free future Windows 10 upgrades to change the accounting treatment of Windows OEM revenues to ratable recognition – while not impacting free cash flow, the analyst sees a potential ($0.35) to ($0.75) earnings per share drag in calendar year 2016.