Microsoft Is Smooth, Some Flat Results for Coca-Cola
Some good news, some not-so-good, but no big surprises in these reports.
Microsoft's MSFT first quarter of fiscal 2005 (reported late Thursday) was fine, so we don't expect to change our $31 fair value estimate. All of the firm's major business lines contributed to strong top-line growth of 12%, and as management's ongoing cost-control efforts kept expense growth to just above 1%, operating income grew an impressive 29%. And while the company's pipeline of large orders wasn't stellar, we don't think that it was weak enough to merit lowering our revenue estimate for 2005 or 2006, either. In fact, management's guidance for revenue and earnings in fiscal 2005 is in line with the assumptions that get us to our current fair value estimate, and given that Microsoft's guidance is usually pretty conservative, we remain confident with our estimates. More importantly, we remain confident in our long-term investment thesis. Microsoft's ability to generate operating income growth well in excess of revenue growth, along with management's increasing willingness to put cash back in shareholders's pockets, make this a stock that we'd love to own were it to dip back into 5-star territory.
Coca-Cola's KO third-quarter results, announced Thursday, came in about as expected given the firm's prior business outlook issued in mid-September. While we were impressed to see 20% unit case volume growth in China, a critical market for Coke's growth plans, worldwide unit case volume increased just 1%. Still, we were encouraged to see positive signs of product innovation. We'll have an expanded analysis available later today.
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