Earlier today, Bank of America downgraded Microsoft (NASDAQ:MSFT) to a “Neutral” rating. Here’s what you need to know.
1. MSFT Went From a “Buy” to “Neutral,” Which Isn’t a Huge Drop
Companies fluctuate when it comes to ratings from investment banks, and moving from a Buy to Neutral is like dropping from a B+ in Calculus to a C+; it’s not very good, but it’s definitely not the end of the world.
2. It’s the First Time in 5 Years MSFT Has Gotten Downgraded
The reason MSFT’s downgrade is news is because this is the first time BoA/Merrill Lynch has decided to move Microsoft from a Buy rating to Neutral since 2008. In ’08, Bill Gates stepped down as CEO of Microsoft.
3. Analysts Are Worried About MSFT’s Buyback Program
One of the reasons MSFT was downgraded is because of the $40 billion buyback program they announced. It seems like the buyback hasn’t given Microsoft the boost it anticipated.
4. Wall Street Thinks MSFT Should Focus On Mobile Development
Analyst Kash Rangan, who downgraded the stock, wrote that he hopes Microsoft puts more of an emphasis on smartphone and mobile devices:
He said the firm “held out hope” that Microsoft would make a larger foray into smartphones and tablets with its Windows 8 operating system.
5. This Downgrade Comes at an Interesting Time for MSFT
It’s an interesting time for Microsoft because they are reportedly working on a number of intriguing products. The Xbox 720 is rumored to come out sometime in 2013, and we could see it in a few weeks, since Sony announced the PS4 a few weeks ago and Microsoft wouldn’t want to lose any customers to Sony. Microsoft is allegedly working on a Windows 8 refresh too, called Windows Blue, that we may get glimpses of at Microsoft’s BUILD developers conference.
6. Analysts Think PC Sales Will Decline in the Next Year
By the way, Rangan also thinks Microsoft PC sales will start to decline, which could really hurt MSFT’s bottom line:
Looking at 2013, Rangan widened expectations for slowdown in the PC segment year-over-year from 3 percent down to 5 percent. Data from the PC supply chain suggests weak trends in the market, he noted.
7. Microsoft is Already Down Today
The day’s been getting worse for Redmond-based company. Microsoft has been falling consistently all day. It’s now at $28.44, down a few cents from yesterday’s closing price of $$28.56.
8. Windows 8 Hasn’t Been Doing Well
Another reason MSFT was downgraded is because Windows 8 has not been doing well at all, which must be a surprise for Microsoft. Rangan writes:
We were hoping that MSFT would make a bold foray with Win 8 into smartphones and tablets. Conventional product cycle wisdom dictates that the stock should peak before a Win launch (it hit $31.45 in Sept ’12 before Win 8), but we remained optimistic because the limited availability of touch-based devices impaired an objective assessment of Win 8. Now, six months post launch, despite more available touch-based devices, Win 8 lacks momentum, challenging our optimism.
9. Cramer Mentioned MSFT Last Night on Mad Money
It’s interesting that MSFT is in the news today. Jim Cramer of CNBC’s Mad Money listed Microsoft as a potential buyer for Netflix (NASDAQ:NFLX). Cramer said the hypothetical acquisition could help the Xbox become more than a video game console, but the home entertainment system.
10. Don’t Worry, Microsoft Should Go Up Soon
With Windows Blue and the Xbox 720 on the horizon, it seems to us that MSFT will be going up over the next few months. Once more Xbox 720 details are leaked and MSFT presents Windows Blue, the anticipation for these products will grow exponentially, which should fuel the company’s stock price. If you’re looking for a long-term buy, MSFT might be a good pick.