Street Estimates For Microsoft Windows 10 'Still Too High,' PacCrest Says

In a report published Wednesday, Pacific Crest analyst Brendan Barnicle maintained an Overweight rating and $55 price target on Microsoft Corporation (NASDAQ: MSFT). The analyst expressed concern regarding the consensus projection not accounting for the new Windows 10 revenue recognition policy.

"We have spoken to Microsoft resellers and partners in the U.S., U.K., Germany and Canada, and uniformly, they are reporting accelerating sales, with particular strength in the cloud products. So, we have increased confidence that Microsoft can meet or beat consensus expectations for FQ4," Barnicle stated.

Microsoft typically runs a series of year-end promotions during FQ4, and the company is doing so this year as well. These, along with the increasing interest in Office 365 and Azure, position the company for robust cloud results for the quarter, despite FX headwinds.

However, according to the Pacific Crest report, "Channel feedback is still surprisingly limited on Windows 10. The channel is positive on Windows 10 because it combines the strengths of Windows 7 with the enhancement of Windows 8."

The analyst believes that the Street estimates for F2016 are still too high, given that they do not reflect the revenue recognition change, despite the guidance provided by Microsoft.

"The company will be providing a "bridge" between the old and new accounting treatments. So, investors can see what business would have been if the company had not adapted the Windows revenue recognition changes. But, we are still concerned that the lower numbers might disappoint," Barnicle added.