Microsoft Takes 'A Step Back In The Journey Forward,' Credit Suisse Says

In a report published Tuesday, Credit Suisse analysts trimmed their forecast for Microsoft Corporation (NASDAQ: MSFT) after the company reported fiscal second-quarter results. The firm adjusted its fiscal 2015 revenue estimate to $94.412 billion (from $98.627 billion), and its EPS projection to $2.67 (from $2.97). For fiscal 2016, revenue estimates were adjusted to $101.080 billion from $107.251 billion and EPS of $2.99 from $3.41.

Analysts maintained an Outperform rating and a $55 price target (which implies a NTM unlevered EV/FCF multiple of 15.1x and a NTM P/E multiple of 19.8x).

Related Link: Microsoft Shares Sink After Posting Q2 Results

According to the firm's report, the “underlying metrics related to Windows revenue were disappointing —as was management's outlook for FQ3.”

While the analysts were “pleased by the outperformance in Azure and Office 365, as well as management's outlook for these segments, […] the magnitude of the decline in ASPs and attach rates for Windows was clearly larger than Wall Street anticipated and will be a headwind for at least the next several quarters —which, when combined with 400 bps FX translation revenue headwind during FQ3, will more than offset the strong growth in Azure and Office 365 in the near-term.”

Despite the disappointment, analysts point out that there are still multiple options for Microsoft’s management to unlock shareholder value, including: “(1) rationalizing the cost structure of the company (which management is already undertaking), (2) potentially divesting/exiting non-core businesses, (3) optimizing the capital structure (as evidenced by the announced fast-tracked share repurchase program) and/or (4) accelerating the shift to Office 365 (i.e., "pull a full Adobe").”