Weekly Review: Microsoft, IBM, HP And Adobe

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S&P declined by 3% in the week,  marking a four consecutive week decline for the first time in three years. The AMEX Information Technology Index (NYSE:XIT), which is compromised of large cap technology stock listed on New York Stock Exchange, outperformed the broader technology market, NASDAQ 100 Technology Sector(NASDAQ:NDXT) as it rose slightly during the week. In the week, most of the companies in the enterprise services space unveiled upgrades and associations in the Cloud services domain. 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

During the week, Microsoft was in the news for unveiling upgrades for its big data offerings, all of which will give Azure customers new options for cloud deployment and data-analysis applications. Currently, Azure has a revenue run rate of over $1.2 billion, and is expected to power Microsoft’s cloud business in the future. The upgrades, which incorporate Apache storm capability to process big data in realtime, will help the company to propagate its cloud services (including services like machine learnings) to cash strapped small and medium size businesses.

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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 upside 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.

IBM

IBM’s stock declined during the week, inline with the broader market. During the week, IBM partnered with SAP to launch SAP’s Hana Enterprise Cloud managed services platform and applications for its cloud services.((IBM, SAP to partner on cloud computing for businesses, October 14 2014)) Our valuation of $227 (market cap of $237 billion) for the company is 26% above the current market price of $180 (market cap of $187 billion).

As we go to press, IBM announced earnings, reducing its forecast and divulging its sale of its chip making assets to Global Foundries. We are presently working on an earnings update and will update the reader as soon as possible.

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

HP announced launch of the HP ConvergedSystem 200-HC StoreVirtual system and the HP ConvergedSystem 200 HC EVO: RAIL, uses VMware’s pre-integrated EVO: RAIL. Both the HP ConvergedSystem 200-HC StoreVirtual system and HP ConvergedSystem 200 HC EVO: RAIL will be available from December. The new offering will provide ready-built integrated systems designed to make it easier for organizations to build and operate data centre infrastructure optimized for virtualized workloads. [1]

Our valuation of $29.79 (market cap of $55.7 billion) for the company is 15% below the current market price of $34 (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 was in the news as it was positioned by Gartner, Inc. as a Leader in the 2014 “Magic Quadrant for Web Content Management1” research report. This further affirms Adobe’s position as a leader in the digital marketing space. [2] However, the stock was down nearly 10% in the week as sell off on broader market took toll on it.

Currently, our valuation of $57.79 (market cap of $28.8 billion) for the company is 10% below the current market price of $62.86 (market cap of $31.4 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. HP’s Dual Hyper-Converged Strategy: StoreVirtual VSA, VMware EVO: RAIL, October 14 2014 []
  2. Adobe Positioned as a Leader in Gartner Magic Quadrant for Web Content Management, October 14 2014 []