Analysts At Jefferies Reduce Earnings Estimates For Microsoft

Gartner’s most recent PC industry forecast has lowered the PC unit expectations to a decline of 7.3 percent year on year in 3016, from the earlier forecast of a decline of 1.5 percent.

Jefferies’ John DiFucci maintained an Underperform rating on Microsoft Corporation MSFT, with a price target of $40.

Gartner Lowers Forecasts

DiFucci mentioned that the Gartner forecast does not account for any future weakness on account of the potential fallout of the Brexit vote.

The Gartner forecast also suggests a modest recovery of PC units in 2017 of 1.8 percent.

The analyst noted, however, that “the forecasts have trended lower over time and any hope for an expected recovery now comes off a base that is lower than prior forecasted troughs.”

DiFucci also pointed out that while any recovery in PC unit demand would be welcome by the industry, overall PC industry revenue is likely to continue to be flat over the next four years.

Estimates Lowered

“This revenue forecast, in our view, is indicative of the challenging PC demand environment and we also note that Microsoft has lower price points on lower priced PCs, including those in emerging markets,” the analyst said.

The revenue and non-GAAP EPS estimates for Microsoft have been lowered to reflect the lower PC unit forecasts, with the estimates now below the consensus expectations.

DiFucci believes that much of the PC shipment shortfall would come from the emerging markets, where Microsoft has not fully monetized its Windows business.