Analysts at Pacific Crest Securities released a report this week updating their outlook for Microsoft Corporation MSFT 0.88% in light of Intel Corp INTC 0.42%‘s pre-announcement of weak PC sales numbers.
Analysts believe weak PC numbers will hit Microsoft hard.
Intel’s Announcement
Intel’s desktop PC numbers for Q1 were bad enough that the company lowered its guidance by $900 million. According to the report, Microsoft has also recently mentioned weakness in the PC segment.
Adjusting The Numbers
Analysts have adjusted their forecast for Microsoft based on Intel’s announcement. Analysts lowered their FQ3 D&C licensing and FQ2 commercial licensing revenue estimates from $3.5 billion and $9.8 billion to $3.3 billion and $9.6 billion, respectively.
They maintain their below-consensus FQ3 earnings per share (EPS) estimate of $0.51.
Forex Headwinds
Intel mentioned forex headwinds from a weak euro as a drag on earnings. Pacific Crest analysts also made forecast adjustments based on the current forex environment.
“We are lowering our Nokia assumptions, which were too high in our prior model,” they write in the report.
In addition to the lowered expectations for Nokia Corporation NOK 0.26%, analysts also reduced their earnings estimates for Microsoft for FQ4, F2015, F2016 and F2017.
Outlook For Shareholders
Despite the downward adjustments, Pacific Crest analysts remain bullish on Microsoft stock. They lowered their target on the stock to $48 based on the recent PC news, but maintain their Outperform rating.
“We continue to believe that FCF is the best way to evaluate Microsoft during its model transition and expect over $3 in FCF in F2016,” analysts explain.
Analysts also believe that the uncertain environment surrounding Microsoft in the near-term will likely lead to the stock trading at a lower free cash flow multiple.
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