, it's sell on the rumor, buy on the news.
A week ago, Microsoft's
situation seemed dire. Newspapers carried details of antitrust prosecutors' impending proposal to split the software company apart, and nearly every analyst on Wall Street filed a report lamenting the disappointing revenue the company had disclosed the prior Friday. The stock
fell 16% to 66.
On Monday, the first business day after that dreaded
breakup proposal was made public, Microsoft shares gained 3 11/16, or 5.29%, to close at 73 7/16.
The reason, analysts say, is certainty.
"The fact that we now know what the government is asking and how unlikely it is to be accepted is causing a rally in the shares," said George Godfrey, analyst for
. "It's worse not knowing what the facts are."
But the week gone by has brought no certainty that revenue will improve or that the company will defeat the breakup proposal.
This much is certain: On April 28, the
Department of Justice
and 17 states asked U.S. District Judge Thomas Penfield Jackson to order Microsoft to prepare a plan to reorganize itself into two parts. One part of the company would own the operating system business, including the Windows operating system that runs more than 80% of the world's personal computers.
Of course, that was all reported in three national newspapers on April 24. So perhaps, Godfrey speculated, the price gain Monday could simply stem from the strong trading day for most technology stocks.
The fact remains that more than a dozen analysts wrote reports urging their firms to buy the stock Monday, setting price targets north of $100. Sure, they wrote, splitting the company would halt its ability to innovate, spook the hardware makers it counts as customers and devalue its stock. But, in the words of Joseph Farley, analyst for
Donaldson, Lufkin & Jenrette
, "in the end we are comfortable that MSFT should win this in the appeals process."
That, too, is a sentiment analysts have reiterated for months.
Melissa Eisenstat, analyst for
CIBC World Markets
, pulled her firm out of the game four weeks ago, before the revenue disappointment. She rates the stock a hold and does not plan to revise her model until the company is either split apart or not split apart.
"How could you revise your model unless you were in the head of both Judge Jackson and the appeals courts?" she asked. In the company's current position, the fluctuations in its stock revolve around factors like the fact that last week, "it appeared that the DOJ was going to put out something mean. Do I know now that earnings are going to be better? No."
For those still making calls on Microsoft stock, timing is everything. A week--or even just a weekend of reflection--can make a difference, said Rich Scocozza, analyst for
Back in November, "everybody knew Microsoft was going to lose the case," said Scocozza, who rates the stock a buy. "Then, when the findings of fact came out, I had people calling me saying, 'Gee, this is really bad.'"
"The Street's weird that way," he said. "People really want to see it."