Microsoft Rises Despite Downgrade

Update (4:40 p.m. EST): Updated with closing price, day high and low prices, price change and volume information.

NEW YORK (TheStreet) -- Microsoft (MSFT) rose 2.29% to $35.78, up 80 cents from its previous close of $34.98, at the close of the trading day on Tuesday despite Citigroup's downgrade of the stock to neutral from buy.

The stock had a volume of 41,538,404, just above its average of 40,892,700. It hit a high of $35.88 and a low of $34.63 for the day. 

Citigroup, which held its target price for Microsoft at $35, reasoned that an insider taking over as CEO would drive shares lower, but an outsider would help the stock recover. But Citigroup stated that an outsider still may not make changes as quickly as some investors would like, which would move the stock lower.

Some names that Microsoft is reportedly considering for the position are former Microsoft executive and GoPivotal CEO Paul Maritz, former Microsoft Office leader and former Nokia (NOK) chief Stephen Elop, former Skype CEO and current Microsoft executive Tony Bates, and Satya Nadella, who has earned praise for making Microsoft's back-office software more Web compatible. Reports also are saying Miccrosoft's focus has shifted primarily to internal candidates.

Microsoft may have risen Tuesday because GameStop  (GME) informed investors Tuesday of a larger-than-expected decline in sales in the fourth quarter for Sony (SNE) PlayStation 3 and Microsoft Xbox 360 games. But that decline also came with a 99.8% increase in new hardware sales, driven by the Sony PlayStation 4 and Microsoft's Xbox One.

TheStreet Ratings team rates MICROSOFT CORP as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate MICROSOFT CORP (MSFT) 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 solid stock price performance. 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:

  • The revenue growth came in higher than the industry average of 4.9%. Since the same quarter one year prior, revenues rose by 15.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • MSFT's debt-to-equity ratio is very low at 0.20 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 2.65, 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 CORP's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 33.07% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, MSFT should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • You can view the full analysis from the report here: MSFT Ratings Report

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