Microsoft Could Get Lift From Higher Margins - TheStreet

Microsoft Could Get Lift From Higher Margins

Trefis members say higher margins on the company's Windows operating system and Office Suite could lift the stock higher.
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Microsoft

's

(MSFT) - Get Report

stock could rise as much as 15% from improved margins for its Windows operating system and Microsoft Office Suite.

Trefis members have created forecasts for two key drivers of Microsoft's shares over the last week: (1) Windows OS Operating Margin and (2) Microsoft Office Operating Margin.

Trefis member forecasts for both drivers indicate expectations that are above the estimates of the in-house team of analysts at Trefis. These member projections result in a combined upside of around 15% for Microsoft's stock.

Microsoft competes with

Google

(GOOG) - Get Report

and

Apple

(AAPL) - Get Report

in the operating system and productivity software markets.

We currently have a Trefis price estimate of around $28 for Microsoft's stock, about 12% above the current market price of close to $25.

We estimate that Windows operating system constitutes around 40% of Trefis price estimate for Microsoft's stock. In comparison, Microsoft Office Suite accounts for 33%. The stock is quite sensitive to (1) Windows OS Operating Margin and (2) Microsoft Office Operating Margin. Below are charts showing recent estimates created by Trefis members for the two drivers.

The average of Trefis member forecasts for Windows OS Operating Margin indicate an increase from 71.5% in 2010 to around 80% by 2016, compared to the baseline Trefis estimate of a decrease from around 64% in 2010 to around 61% by the end of the Trefis forecast period.

The member estimates imply an upside of 13% to the Trefis price estimate for Microsoft's stock. In the past, Windows OS Operating Margin decreased from 77% in 2006 to close to 68% in 2009.

Disagree? You can drag the forecast trend-line above to express your own view, and see the sensitivity of Microsoft's stock to Windows OS Operating Margin.

Our

complete analysis for Windows OS Operating Margin is here

.

The average of Trefis member forecasts for Microsoft Office Operating Margin indicate a decrease from 63% in 2010 to close to 62% by 2016, compared to the baseline Trefis estimate of a decrease from 60% in 2010 to 57% by the end of the Trefis forecast period.

The member estimates imply an upside of 3% to the Trefis price estimate for Microsoft's stock. In the past, Microsoft Office Operating Margin has decreased from around 67% in 2007 to 65% in 2009.

Disagree? You can drag the forecast trend-line above to express your own view, and see the sensitivity of Microsoft's stock to Microsoft Office Operating Margin.

Our

complete analysis for Microsoft's stock is here

.

Trefis

is a financial community structured around trends, forecasts and insights related to some of the most popular stocks in the U.S.