Microsoft Still Golden, Says Goldman (MSFT, GS)

Goldman Sachs analysts Sarah Friar, Derek Bingham, Stephanie Withers, and Ventsi Stoichev reiterated their Buy rating for Microsoft (NASDAQ: MSFT) following its announcement of its private convertible note offering.

Microsoft plans to raise $1.15 bn in private convertible notes (due 3/15/2013) with an option to sell an additional $100 mn.

According to Goldman Sachs, "The additional debt is largely immaterial given MSFT’s already substantial cash balance (around $40 bn) and buybacks that typically exceed $1.15 bn per quarter. However, we view the offering as accomplishing several goals: (1) Just like the $6 bn straight bond offering from a year ago it gets
the company’s feet wet for further convertible debt; (2) It marginally begins to weight cash back on shore for buyback purposes."

MSFT is currently trading at a CY11 P/E of 10.0 relative the software median 17.9 and the S&P500 median 11.3. The price target of $38 implies 50% upside from its current price of $25.29.