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Microsoft is poised to outperform in the next few quarters as the software giant experiences many of the drivers that caused its stock to outperform in the past five years, an analyst at FBR Capital Markets said adding that the Dow component may raise its dividend.
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The brokerage said the company's Windows 7 should benefit from the corporate PC refresh cycle, which is in its early stages, and the release of Windows Service Pack 1 (SP1) in the first half of calendar year 2011.
"The much-awaited corporate PC refresh cycle is underway and should drive Windows 7 sales for at least the next year," analyst David Hilal said in a note to clients.
"SP1 should be released in 1H CY11 and should be a catalyst for increased enterprise adoption," the analyst added.
Hilal, who has an "outperforming" rating and $32 price-target on the stock, expects the Xbox business to enjoy a strong second half in calendar year 2010 with the upcoming releases of Halo Reach and Kinect.
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Hilal noted that a successful Windows Phone 7 launch this holiday season and steady traction of Azure should improve the sentiment around the stock and lead to multiple expansion.
The analyst also expects Microsoft's revenue growth to accelerate to 9 percent in fiscal 2011 from 7 percent in fiscal 2010.
Hilal, who expects Microsoft to continue its remaining $24 billion share buyback, added that Microsoft may raise its dividend this fall after taking a break from annual increases last year.
From 2006 to 2008, Microsoft increased its quarterly dividend each September, hiking its dividend from $0.09 to $0.10 in 2006, to $0.11 in 2007, and to $0.13 in 2008.
Microsoft's dividend yield currently stands at 2.1 percent compared to 2.1 percent for the S&P 500, 3.2 percent for Intel, 2 percent for IBM, and 0.8 percent for both HP and Oracle.
Shares of Redmond, Washington-based Microsoft closed Wednesday's regular trading session at $24.86 on Nasdaq.
