UBS Securities’s Brent Thill this morning reiterates a a Buy rating on shares of Microsoft (MSFT), while raising his price target to $36 from $33, writing that Microsoft’s upcoming updates to its enterprise products should be a “powerful refresh cycle,” especially given how Microsoft has changed some of its pricing terms.
The updates this year include “Windows Server 8,” “SQL Server ’12,” “Office 15,” and “System Center 2012.”
Among the changes that Thill sees as key are the change in pricing of SQL Server to a “per-core” licensing model, meaning the customer pays by each CPU core on a server processor on which the database is run.
“SQL’s shift to per-core pricing which means a standard SQL user will see a 20-25% price increase and some customers deploying on higher-end processors (10+ cores) could see licensing costs double,” writes Thill.
Moreover, Office 15 will come at the same times as updates of all the major Microsoft corporate products it works with, including “SharePoint,” “Exchange,” “Lync,” and “Office 365.”
All that could produce EPS of $3.05 in the fiscal year ending June of 2013, Thill writes. That would be above the $3.01 consensus on the Street.
Thill writes that the Street’s operating margin assumption of 37.8% is too low for a year in which the operation system, Windows 8, is debuting.
Lastly, Thill sees Microsoft getting margin expansion, the way it did during the Windows 7 introduction, given that the stock is too cheap relative to the benchmark:
With central bank liquidity events and improving domestic macro conditions over the past few months the S&P 500 trades at 13.4x consensus CY12 EPS $106. MSFT�s CY12 earnings multiple has risen +25% YTD however remains at a 15% discount to the S&P 500 multiple at 11.3x CY12 EPS.
Microsoft shares today are down 24 cents, or 0.7%, at $32.05.
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