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Microsoft Cut at CSFB

It says other software stocks have a better chance of outperforming.
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CSFB cut its investment rating on


(MSFT) - Get Microsoft Corporation Report

to neutral from outperform, saying there are better places for software investors to put their money.

The stock closed Thursday at $26.99, which is 20.4 times the 2006 Thomson First Call consensus earnings estimate of $1.32 a share and 17.8 times the 2007 estimate of $1.52 a share. Microsoft's fiscal year ends in June.

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"With the stock trading near $27, and having only 10% appreciation to our

$29 price target, we believe that the stock is only modestly undervalued," CSFB wrote. "Microsoft could still serve as a nice hedge against near-term volatility in the market, however we find other software stocks as offering greater long-term growth potential."

Several factors could limit Microsoft's upside, the brokerage wrote, including too much personal-computer growth coming from low-end markets; a shift to new computing devices; and slow uptake of the next-generation Vista operating system.

CSFB cut its first-quarter revenue estimate to $11.76 billion from $11.9 billion, citing lower-than-expected Xbox sales. It raised the earnings estimate to 33 cents a share from 32 cents a share for the same reason, saying the company loses money on each game console. Analysts surveyed by Thomson First Call are forecasting earnings of 33 cents a share on revenue of $11.99 billion in the December quarter.

On Instinet, the stock fell 20 cents to $26.79.

"Our long-term thesis on Microsoft is that the stock will not likely outperform the broader technology market, primarily due to its size, and its need to defend its high-margin monopoly businesses, while simultaneously growing its emerging businesses profitably, despite increased competition," CSFB said. "Although we do believe that the stock could still post modest gains next year, we believe that the stocks that outperform in the sector will be those with growth stories."