Weekly Review: Microsoft, IBM, HP And Adobe

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While the AMEX Information Technology Index (NYSE:XIT), which is compromised of large cap technology stock listed on New York Stock Exchange, has been underperforming the broader technology market, NASDAQ 100 Technology Sector(NASDAQ:NDXT) has outperformed the broader markets. In this report, we discuss some of the key events from the past week for Microsoft Corporation (NASDAQ:MSFT), International Business Machine (NYSE:IBM), Hewlett-Packard Company (NYSE:HPQ) and Adobe (NASDAQ:ADBE).

Microsoft Corporation

Microsoft unveiled its latest version of Windows on Tuesday in San Francisco. It has been named as Windows 10 and not Windows 9 as was rumored. Microsoft said that the new product is a major overhaul – so going directly to 10 made sense. Windows 10 will be available from 2015. However, a beta version will be available for testing in the coming month. [1] The product will support multiple devices—i.e hardware with different form factors such as tablets, mobiles, laptops and desktops. We have a $44.28 price estimate for Microsft, which translates to a market cap of around $366 billion. Our price estimate represents a slight downside to the current market price. We estimate the company’s Calender Year 2014 EPS at around $2.72 (Company has financial year ending in June), compared to a consensus estimate of around $2.69 according to Reuters.

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IBM

IBM’s stock declined during the week, inline with the broader market. During the week, Lenovo’s long-awaited $2.1 billion acquisition of X86 line of servers from IBM was partially completed, beginning with certain geographies. [2] Our valuation of $227 (market cap of $237 billion) for the company is 22% above the current market price of $186 (market cap of $186 billion). We expect IBM to report revenue of around $101 billion and net income of $16.87 billion for 2014. We forecast non-GAAP diluted EPS of $16.75, which is below the market consensus of $18.41 (Reuters).

HP

Hewlett-Packard’s stock has increased by 20% year to date. However, during the week, the stock declined, inline with the selloff broader markets. The company announced launch of new hardware across both its server lines and personal computing space in the week. HP not only launched inexpensive yet sleek Windows based tablets and phones, but also launched a new line of its Moonshot servers that employ chip designs from ARM, targeting certain processing applications. [3] Our valuation of $29.79 (market cap of $55.7 billion) for the company is 20% below the current market price of $34.51 (market cap of $64 billion). We expect HP to report revenue of around $115 billion and net income of $6.1 billion for calendar year 2014. We forecast non-GAAP diluted EPS of $3.2, which is below the market consensus of $3.6 (Reuters).

Adobe

Adobe’s stock continues to defy the broader markets as it declined at a slower pace compared to the indices. For the week ended 3rd October, the stock traded in the $66-$70 range. During the week, the company rolled out Chrome Operating System compatible versions of its Creative Cloud and Photoshop Cloud. [4] This launch should help the company to increase its user base beyond the traditional Mac and Windows users. Currently, our valuation of $58.14 (market cap of $28.9 billion) for the company is 15% below the current market price of $67.14 (market cap of $33.4 billion). We expect Adobe to report revenue of around $4.28 billion and net income of $283 million for calendar year 2014. We forecast non-GAAP diluted EPS of $1.25, which is inline with the market consensus of $1.26 (Reuters).

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Notes:
  1. Microsoft unveils first look at Windows 10 []
  2. Lenovo’s IBM server deal to close this week, September 29 2014 []
  3. Expectations Lower, HP Launches Another Moonshot, September 29 2014 []
  4. Adobe Creative Cloud Comes To Chromebooks With Photoshop, September 30 2014 []