Friday, October 5, 2012

Microsoft: Updating our Model for the Office Tech Guarantee, Dividend Increase, and Gartner's PC Unit Forecast


As discussed previously many times, dividends will become more important. And look, Microsoft is increasing the dividend. Aivars Lode

We are revising our MSFT earnings model to reflect: i) MSFT’s guidance for the impact of the Office Tech Guarantee; ii) a dividend increase to $0.23 per share from $0.20 per share; and iii) Gartner’s latest PC unit shipment forecast. The net effect of these changes is relatively modest: for FY2013, revenue and GAAP EPS are now $80.5 billion and $2.94, compared to $80.7 billion and $2.96 previously; for FY2014, revenue and GAAP EPS are now $86.0 billion and $3.24, compared to $86.8 billion and $3.28 previously. We continue to rate shares of MSFT Neutral.
  • Office tech guarantee. Management estimates $100–140M of Office revenue will be deferred in the SepQ; we estimate a further ~$500M will be deferred in the DecQ. These amounts will be recognized as revenue upon GA of Office 2013, which we assume happens on January 1, 2013.
  • Dividend increase. As previously announced, MSFT’s dividend per share will increase to $0.23 from $0.20 starting in the DecQ. This amounts to about $250M of additional quarterly dividend payments.
  • Gartner’s updated PC unit shipment forecast. Gartner’s latest forecast calls for CY12 and CY13 y/yunit growth of 0.2% and 7.3%, compared to 2.4% and 10.1%, previously.
  • Model changes. Our SepQ revenue and GAAP EPS are now $16.3B and $0.51 vs. $17.0B and $0.54 previously; our FY2013 revenue and GAAP EPS are now $80.5B and $2.94 vs. $80.7B and $2.96 previously; and our FY2014 revenue and GAAP EPS are now $86.0B and $3.24 vs. $86.8B and $3.28 previously.
  • We continue to rate shares of MSFT Neutral. We are establishing a December 2013 price target of $30 based on our DCF.

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