AmTech Previews Microsoft's (MSFT) Q1 Earnings; Cuts PT to $26

American Technology Research is out with a note previewing Microsoft's (Nasdaq: MSFT) Q1 earnings, which are due out after the close on Thursday, October 23. The firm maintains its Buy rating but lowered its price target on Microsoft from $32 to $26.

The firm expects Microsoft to report in-line earnings for Q1 and sees the company slightly reducing its outlook for FY09, but believes that a lowered outlook is "already widely anticipated in the stock." Given low expectations, AmTech believes that shares of Microsoft "will likely rally on anything less than an abysmal outlook."

Specifically, AmTech expects to see Microsoft cut its FY09 client growth from 9-10% to 7-8% and its FY09 EPS guidance from $2.12-$2.15 to $2.09-$2.12. The Street is currently expecting FY09 EPS of $2.11.

AmTech calls Microsoft "one of the best defensive names in enterprise software with a $24B cash balance, huge FCF and ability to buy back shares, along with a multi-year trough valuation." Given this backdrop, and the fact that a guidance reduction is most likely priced into Microsoft's stock, the firm sees risk/reward as positive moving into the quarter.

Microsoft Corporation provides software products for computing devices worldwide.

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