Microsoft Bulls Still Play Waiting Game

In addition, a strict strategy for dividend increases -- rather than a one-time dividend -- would be more appealing to value investors and would consequently boost the stock more, said Pacific Crest Securities analyst Brendan Barnicle. Still, he believes that Microsoft initially would only double the dividend, resulting in a 1.3% yield. (Barnicle has a buy rating on Microsoft. His firm hasn't done banking with the company, but Barnicle holds Microsoft shares.)

On the product front, even bulls acknowledge that there's little to get excited about in the near future, given Microsoft's schedule for Yukon and Longhorn. "There's not a major new product delivery coming up in the next couple of quarters that will really change perceptions," says SG Cowen analyst Drew Brosseau, who is recommending Microsoft. (His firm hasn't done any banking with Microsoft.)

That may explain in part why Microsoft CFO John Connors cautioned investors in January to expect slower growth in fiscal 2005, which begins in July. Microsoft is expected to offer its first detailed 2005 guidance during Thursday's call.

Estimate trimming has already begun. On Tuesday, Sherlund lowered his 2005 revenue growth forecast to 6% from 8% to reflect a waning currency benefit, and said that 5% to 10% earnings growth is a reasonable expectation. The consensus estimate calls for revenue growth of 7.4% in 2005, to $38.51 billion, and earnings growth of 6.7%, to $1.28 a share, according to Thomson First Call.

That's a far cry from Microsoft's glory days of as much as 50% annual revenue growth in the 1990s -- and one reason some investors are avoiding the name. But Brosseau argues that investors are ignoring Microsoft's outperformance relative to other major software vendors.

"Frankly, to be talking about Microsoft slowing down is pretty boring," Brosseau said. "I think the more interesting point these days is Microsoft is growing faster than anyone else in software, despite their size."

In addition, with products such as Xbox and MSN, Microsoft is the only major software maker expanding its reach in the consumer market to attract a broader swath of new customers, Brosseau noted.

Choice Funds' Adams, meanwhile, acknowledges that other tech names may be poised to jump higher than Microsoft but he still likes Mister Softee because it's less volatile. "This thing hasn't moved in such a long time that as soon as it starts to move, [everyone] will pile on," he says.

But without more clarity on when that comes, Microsoft's stock may remain adrift.

Microsoft's Revenue Is Still Growing The software giant's revenue growth is still higher than most large-cap peers.
Company	Latest Quarter Growth	Latest 12 Months Growth	5-Year Revenue Growth
Microsoft	19%	11%	12%
Oracle	9	5	0
SAP	16	13	10
Computer Associates	8	7	-18
Intuit	14	21	14
Siebel Systems	-1	-9	9
Source: Baseline