Merrill Says Microsoft's a Value

It cites some recent sales trends and the chance it will raise its dividend.
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Merrill Lynch raised


(MSFT) - Get Report

to buy from neutral, saying improving personal-computer sales and acceptance of its new server software minimize the risk of a near-term earnings miss.

Merrill's price target is $30. In Instinet premarket trading, the shares were recently up 65 cents, or 2.5%, to $26.80. The 52-week high is $29.48; the low $20.71.

"Several data points lead us to believe that there could be some upside to our fourth-quarter EPS estimate of 23 cents a share, and as such we are raising our estimate for the quarter to 24 cents, keeping our revenue estimate of $7.8 billion intact," Merrill wrote. "Select and open agreements seem to be doing better on the strength of new product shipments as well as the 12-month time lapse from the 6.0 licensing."

"Additionally, we have been getting some good feedback on the Windows 2003 product, which is going to be key to the company moving up into enterprise. We have also heard positive spending feedback on SQL server, SharePoint, and Biz Talk, all of which could lead to some revenue upside," Merrill wrote.

Merrill also raised the prospect that Microsoft might boost its recently instituted dividend.

"Upon the announcement of the first dividend, currently 8 cents, with a 0.3% yield, the company referred to this as a 'starter' dividend," Merrill noted. "We believe this could increase to 26 cents, or 1%, using other large, moderate growth companies as a guide."