Citi agrees with Goldman Sachs: Sell Microsoft now
It's rare these days for big Wall Street firms to actually tell investors to sell a stock, but the Citi team, led by analyst Walter Pritchard, is doing exactly that:We rate shares of Microsoft a Sell. We believe shares are being buoyed by excitement around new CEO Nadella and cloud services.
Nadella's plans include giving away the next version of Windows, Windows 10, for a year to consumers, as well as offering free versions for small devices; pushing its enterprise customers to cloud services, some of which are low margin, in the hopes of enticing them to also buy higher margin cloud services; and bringing to market a whole new set of apps and technologies that let people work smarter, faster, and collaboratively on any platform, - not just Windows, but also iOS and Android.While most analysts believe in the long-term vision, they remain concerned about the mid-term.
Pritchard is particularly concerned about:
- Continued decline of the PC market that is not offset by Microsoft's small share of the smartphone market.
- Cannibalization of the company's high-margin cash cow businesses, including Windows and Office, replaced by lower-margin cloud-based businesses.
- More debt on the books to offset the decrease in cash flow and still meet the promises for stock buy-backs.
- and, like all the bears these days, he also warns there could be a bigger hit from the foreign exchange rate, which is plaguing all US multinationals.
Pritchard's bearish view is echoed by others like Goldman Sachs, who also rates the stock a sell.
But that view is being countered by more optimistic analysts, like Wells Fargo, who think Microsoft has a clear plan, and that stock will leap as the company shows progress in its key new areas, like cloud computing.
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