Shares of Microsoft (MSFT) are up 96 cents, or almost 3%, at $33.02, after Evercore Partners‘s Kirk Materne raised his rating on the shares this morning to Overweight from a prior Equal Weight, with a $38 price target, writing that the “risk-reward” tradeoff is good at the current price because the enterprise side of the company is “stable,” and “sentiment around Windows is at/near a bottom.”

Materne points out the two biggest parts of the business are “Server & Tools” and the “Business Division,” and not the Windows franchise that is weighed down by PCs:

While Windows gets much of the air time when discussing MSFT, the reality is Windows is now MSFT’s third largest business and Microsoft’s enterprise businesses (MBD and S&T) account for the vast majority of the company’s earnings power. In fact, even when assuming some GM hit due to the shift to Cloud and using fairly conservative assumptions for the consumer-related MBD revenue (~15% of MBD), we believe that on a stand-alone basis, MBD and S&T could be worth $24-$26 per share (~$2.15 in combined CY14 EPS x P/E of 11-12x). When also accounting for ~$6/share in net cash (assume 30% tax hit on offshore), we see the downside risk as being fairly low (~$30) given that S&T and MBD are now largely annuity based and FY13 billings trends were solid – S&T (+9%) and MBD (+3%), especially when factoring in the OEM (S&T) and consumer (MBD) overhangs on each of the businesses. Further, our assumptions allocate corporate-level expense on a revenue- weighted basis. If we were to allocate more of the legal, retail store and IP costs to Windows and E&D, we believe the earnings power of S&T and MBD would be even higher than what we are currently assuming.

The stock price, moreover, represents extremely low expectations from the PC market, and probably already includes another cut to estimates: “Sell-side sentiment is already at a 5-year low and FY14 estimates have come down 16% over the past 12 months.”

“While we believe there might need to be one more cut to FY14 EPS due to the negative GM mix shift in Windows and more cloud-based revenue for S&T and MBD, we believe another 5% trim to FY14 EPS is largely baked into the valuation at this point.”

Materne sees some catalysts this fall, including the financial analyst day meeting next month, the first one since 2011. Microsoft will be able to talk up to analysts its progress in cloud computing and other positive trends.

There should be a dividend increase next month as well, which Microsoft usually does at this time of year, by an average of 21% in the last three years.

And lastly, he still believes that activist investors ValueAct, which took a $2 billion stake in Microsoft in April, may take a hand in trying to push for greater streamlining of the business:

As reported by Business Insider, Value Act is attempting to negotiate a Board seat and while the ultimate outcome is uncertain, we believe the increasing activist focus on Microsoft along with the recently announced re-org could ultimately lead to further cost efficiencies. Every 5% cut to corporate-level spending (we assume spending increases modestly in FY14) equates to about $0.03 in additional EPS upside. We would also note that while we expect that retail store and IP costs embedded in corporate-level spending are unlikely to go down, just backing out the EU fine from FY13 would result in a 5.4% drop in corporate spending y/y and a $0.05 EPS benefit. Bottom line, while Microsoft has made some progress on spending, we believe there is still significant room for improvement and one would hope that a byproduct of the recent re-org would be a heightened focus on cross-business unit efficiency.

A number of analysts in the months since that April announcement have pinned their hopes on the chance ValueAct may push for change.

http://blogs.barrons.com/techtraderdaily/2013/08/08/microsoft-rising-evercore-ups-to-buy-stable-enterprise-low-low-sentiment/

I've read several articles that state that MSFT's investors want an increase in dividends. And more recently, that there is an expectation by many on Wall Street that there will be an increase in the dividend rate.

MSFT investors should be thankful, as this usually coincides with an increase in stock price, which is quite good.

However, this usually also means that the company in question beleives, and is expected by outsiders, that its money is better spent by being returned to shareholders, as opposed to projects such as R&D or capital expenditures to invest in greater future returns.

Therefore, expect what i've been saying for a few years now, that MSFT's growth should slow, evermore. Expect high single digits EPS growth, and low single digits revenue growth from here on out, which isn't horrible at all, just not absolutely fekkin awesome.

I don't know how many times you spread this nonsense before you actually understand what a dividend really is.

How did I display a misunderstanding of anything other than the fact that I dont have Balmer's dick butter smeared all over my face unlike some people?  Do you have to be a hyuuuggggee MSFT fan to post here?  I didnt think so, and my post is actually pretty moderate and reasonable in my opinion, not a trash post at all.  

If you have any valid opinions that I dont understand what a dividend is, then show me how I am in error, please. 

~

Edit: User was banned by TruckOSaurus for this post.

Let me start with: Dividend is not bribery.

The rest is up to you to read in some basic economics literature.

When did I imply that dividends are bribery?  What are you talking about?

well considering that MS already invest more in R&D than any of it's direct competitor by a huge amount, they could cut a third of it for dividend and still spend more on R&D than most in the business...

MS future is way less in danger than their competition just because their business relies on way more diversification than anybody else.... they have almost everything the other parties have and way more....

from business, to industry, education, research, gov contracts, servers, cloud, gaming, services, and pretty much anything running software from missiles to ATMs, to cars, etc etc... I have no worries for MS.... we might see some major changes in the future but MS is here to stay and have a long and happy life in front of them.... anybody questioning that have absolutely no clue on how wide MS involvement is in the software and related services world.... if MS was to tank tomorrow it would be a major shockwave that would disrupt so many businesses it would be the software equivalent of an oil crisis....