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China Repeals Console Ban, Microsoft (MSFT) to Expand Reach in Asia

NEW YORK (TheStreet) -- China's State Council announced it will repeal a 13-year ban on gaming consoles. Companies such as Microsoft (MSFT), Sony  (SNE) and Nintendo will legally be able to sell their wares in the country upon the Ministry of Culture's approval of individual models.

Microsoft already has an edge over competitors. The tech giant and Shanghai Media Group subsidiary BesTV New Media have agreed to a gaming joint venture worth a combined investment of $237 million. Microsoft will have a 49% stake in the venture.

While consoles and games have been available on the black market, legalization will allow hardware and gaming companies, such as Electronic Arts  (EA), Activision  (ATVI) and Take-Two Interactive  (TTWO), to create Chinese-language versions and drive above-board marketing efforts.

Microsoft shares rallied to $33.54, up 2.32% as of 1:40 p.m. EST. Overall, the company is leading the S&P 500 which is down 0.39%.

TheStreet Ratings team rates Microsoft as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:
"We rate Microsoft a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, attractive valuation levels and impressive record of earnings per share growth. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • MSFT's revenue growth has slightly outpaced the industry average of 6.1%. Since the same quarter one year prior, revenues rose by 10.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • MSFT's debt-to-equity ratio is very low at 0.2 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 2.53, which clearly demonstrates the ability to cover short-term cash needs.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Software industry and the overall market, Microsoft's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • Microsoft reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. During the past fiscal year, Microsoft increased its bottom line by earning $2.60 vs. $2 in the prior year. This year, the market expects an improvement in earnings ($2.71 vs. $2.60).

Written by Keris Alison Lahiff.

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