Analysts See Big Buyback Potential At Microsoft

Microsoft (NASDAQ: MSFT) could be on the cusp of boosting its cash returns to shareholders in the wake of Steve Balmer's departure as a director.

"The dynamics of the board are changing," Nomura's Rick Sherlund said in a note Wednesday, although he added "it may be too early to expect a bold move."

Sherlund, who rates Microsoft at Buy with a $50 target, said such a move might be buying back 10 percent of the company's shares outstanding at $38 billion. That would add $0.30 per share to annual earnings, but Sherlund is doubtful of the suggestion "at this early stage."

Separately, UBS' Brent Thill was nursing similar thoughts.

"We see more room for buybacks," Thill said in a note calculating that free cash flow can "comfortably support a boost of $8 billion to $11 billion to its buyback program through 2017.

The company announced a $40 billion buyback authorization a year ago with no expiration date. In the recent quarter, Microsoft spent $1.17 billion repurchasing its shares.

Thill noted that boosting dividends have proven Microsoft's "favored return vehicle" in recent years, with increases typically announced in mid September.

"Thus we'd expect any further hikes to come in the next several weeks," Thill said.

Microsoft closed at $44.95, down 0.84 percent.