Even software behemoth

Microsoft

(MSFT) - Get Report

isn't immune to the recent rash of valuation downgrades.

On Tuesday, Raymond James analyst Rich Scocozza downgraded his rating on the world's largest software maker to market perform from outperform based on valuation. Shares of Microsoft were down 67 cents, or 1.2%, at $55.18 in afternoon trading. Microsoft shares have climbed 26% since the end of September.

Citing an IT-spending environment that remains tough, slow PC growth and lack of major product releases in fiscal-year 2003, Scocozza said in a note that he sees no catalysts to push growth rates higher than current levels and concluded that Microsoft is now fairly valued. "At current prices, we believe continued upside potential may be limited by pressure on Microsoft's earnings outlook for the coming year," he wrote. Raymond James expects to receive or intends to seek compensation for investment-banking services in the next three months from Microsoft.

Scocozza noted that his projections of 9% revenue growth and 5% earnings growth in calendar year 2003 are the lowest yearly forecast in the company's history. Yet on an enterprise value-to-sales basis, Microsoft shares are trading at 7.9 times his calendar-year 2003 revenue estimate of $33.4 billion -- higher than any other software stock he tracks.

Scocozza's calendar-year 2003 earnings estimate of $2.01 is a penny higher than the consensus estimate gathered by Thomson Financial/First Call, while his revenue estimate is in line with the consensus estimate.

In the first-quarter ended Sept. 30, Microsoft posted a whopping 26% year-over-year increase in revenue, but that was largely driven by a change to the way Microsoft requires business customers to buy software. That "anomalous event" is unlikely to continue to help boost the stock price, Scocozza said Tuesday.

Scocozza points to one concern that has long been hanging over Microsoft: slow PC demand. His estimates assume a PC unit growth rate of 3% to 5% in 2003. In addition, Scocozza added the lack of new products on the horizon in Microsoft's current fiscal year, which ends in June 2003, could compound the effect of slow PC growth.