Perception of MSFT might change from a value to a growth company

• The Microsoft stock price might be lifted by the company’s unique propositions to the fast growing tablet market

• The ‘Surface’ tablet and the new Windows 8 OS were launched two weeks ago and low analyst expectations are in contrast to strong initial sales of the device and a high gross profit on the device

• Despite low expectations, the market analysts are positive on the stock with a Buy rating and have an average target pricethat reflects more than 19% upside potential 

 See the full report in the PDF below.

Currently the market appears to be downplaying the large effect that Microsoft will have on the tablet market. Industry analysts believe that Windows 8 will only account for a 6% market share of the tablet market in 2013, highlighting the low expectations for the software. And with low expectations comes low valuation, with Microsoft’s forward P/E at 10.

As it currently stands, Microsoft has had no real presence in the tablet market and tablet friendly Windows 8 will be a massive foot in door into this fast growing and young market. Companies looking for ‘enterprise ready’ tablets and consumers will benefit from Windows 8 tablets as they will be able to run the legacy existing Windows ecosystem, which will be a major advantage versus Android and Apple tablets.  Microsoft will also benefit from sales of its own tablet the ‘Surface’.

In a survey done by Morgan Stanley, it indicated that “61% of prospective tablet buyers indicated that Office was the most important software feature vs 44% for current tablet owners – which suggests there may be pent up demand for a tablet offering a prepackaged Office bundle” like Windows tablets. While the iPad has gained some traction in the enterprise space, the benefits of deploying Windows 8 tablets instead will quickly become apparent to IT departments.

RISK:  PC sales might deteriorate faster than expected and that Windows 8 might not find wide acceptance by consumers and in the enterprise segment.

TIME HORIZON: Longer term strategic play with emphasis on Christmas sales as an acid test.