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In this Monday, June 18, 2012, file photo, Microsoft CEO Steve Ballmer comments on the Windows 8 operating system. (Damian Dovarganes/AP)
In this Monday, June 18, 2012, file photo, Microsoft CEO Steve Ballmer comments on the Windows 8 operating system. (Damian Dovarganes/AP)

Microsoft downgrades pile up Add to ...

Inside the Market's roundup of some of today's key analyst actions

Fresh reports suggesting consumers are quickly losing interest in buying personal computers have prompted four analyst downgrades of Microsoft Corp., just as the stock was finally showing some signs of life this past week.

The harshest, and arguably most influential, downgrade came from Goldman Sachs this morning, which slapped a “sell” rating on its shares while maintaining a $27 (U.S.) price target.

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By doing so, it became the only analyst on the Street recommending investors ditch their shares. According to Bloomberg data, there were 24 buys and 19 holds, but no other sells.

Those buy recommendations, however, are quickly evaporating.

Nomura Equity Research downgraded Microsoft to “neutral” from “buy,” while BGC Partners lowered its rating to “hold” and Hilliard Lyons cut its recommendation to “neutral.”

The analysts were reacting to two separate – but almost identically ugly – research reports released Wednesday on the state of the PC market.

International Data Corp. reported that the number of personal computers shipped in the first three months of this year plunged by almost 14 per cent – the largest drop since it began tracking global sales in 1984. Gartner Inc. reported an 11 per cent drop in the quarter, the sharpest decline it has seen since it started tracking the market in 2001.

It all points to continued weak demand for Microsoft's Window 8 software, as well as for its Surface tablets, leaving analysts and investors wondering where the next catalyst will come from to propel a rebound in the stock price.

“Despite the potential for some degree of value creation, we do not find any clear option to act as a meaningful catalyst to drive our below consensus estimates higher over the near-term,” Goldman analyst Heather Bellini said in her research report.

Ms. Bellini outlined four possible “Plan B” options: a breakup of the company (which she sees as unlikely); the use of offshore cash and more debt; the use of subsidies and price cuts to reignite growth; and the reduction of expenses.

Nomura analyst Rick Sherlund suggested the stock is unlikely to see a meaningful bounce until a new generation of ultrabooks that offer longer battery life and lower prices hits the market. “The combination of Windows 8’s sluggish adoption and the absence of compelling new hardware have been disappointing, with no relief likely until later this year,” Mr. Sherlund said.

Microsoft shares in mid-afternoon trading were down 5 per cent, which brings them back down to where they were at the start of this week.

Target: The average price target among is $32.66 (U.S.), according to Bloomberg.

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Investors should buy Santacruz Silver Mining Ltd. for its near-term production and cash flow growth, fuelled by the Rosario mine in Mexico (where plant commissioning is underway), said Raymond James analyst Chris Thompson.

“In addition, development and exploration potential offered by Santacruz’s high quality portfolio of properties (Rosario, San Felipe, Gavilanes, and El Gachi) offers considerable upside, in our view,” he said.

Target: Mr. Thompson initiated coverage with an “outperform” rating and a $2.50 price target.

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A preliminary economic assessment this week of Lumina Copper Corp.’s Taca Taca copper-gold-molybdenum project reinforces the company’s attractiveness as a takeover candidate, said Raymond James analyst Adam Low.

“The release of the PEA not only de-risks the project by providing greater clarity on its scope, but it should also dissipate fears that the project’s capital expenditure requirements would be unwieldy, especially given inflation concerns within the industry,” Mr. Low said.

He also believes that Lumina is an attractive takeover candidate because it is the sole owner of a project that has good access to infrastructure in a mining-friendly province in Argentina.

Target: Mr. Low maintained a “strong buy” rating, but cut his price target by $2 to $20.

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Bed Bath & Beyond Inc. increased its share of the home furnishings market in its latest quarter to 28.8 per cent of total U.S. home furnishing sales, with the help of its acquisition of Cost Plus last year.

Canaccord Genuity analyst Laura Champine increased her longer term earnings projections for the company, but cautioned that its minimal e-commerce penetration leaves it susceptible to market share losses.

Target: Ms. Champine raised her price target by $4 to $78 (U.S.) and maintained a “buy” rating. The average analyst target is $72.87.

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BMO Nesbitt Burns analyst Paul Adornato initiated coverage of General Growth Properties with an “outperform” rating, a major owner of class A malls in the United States.

“Though the company emerged from bankruptcy less than three years ago, its new management team has created value from internal sources by: re-leasing empty boxes, converting temporary tenants to permanent, and selectively re-developing and expanding top performing centres, including a $572-million expansion of Honolulu’s Ala Moana Center – one of the most productive mall properties in the country,” said Mr. Adornato. “Further, we think there could be upward pressure on the stock, as short-term investors divest or are reclassified as “passive” for index calculation purposes, increasing the stock’s free float and index weight. Finally, we believe there’s still lingering skepticism, given the company’s tumultuous recent past; we’re buyers on this discount.”

Target: Mr. Adornato set a $24 (U.S.) price target. The average analyst target is $21.20.

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For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @ eyeonequities

Follow on Twitter: @eyeonequities

 
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