As Microsoft shares hit a 4.5-year high, one analyst thinks the stock has room to close its performance gap with rival Apple, depending on the success of its upcoming Windows 8 launch.
Walter Pritchard, a Citi research analyst, has a “buy” rating and a $36 price target on the software titan’s shares.
“Our survey work suggests there are certain tablet users — about a third of the market — that value productivity applications, things like Microsoft Office, so our expectation is in those areas Microsoft certainly has a pretty good chance to close the gap,” Pritchard told CNBC. “I think in the general consumer market that still remains to be seen, but there are parts of the market where they’re just not playing today.”
In the past year, Microsoft stock has risen 15 percent, while Apple shares have posted a 40 percent jump.
Pritchard attributed some of Microsoft’s rise to institutional investors, who had previously been underweight on the stock and were using it as a source of funds. He added they chose to jump onboard the stock’s rally after its first move upward to keep up with their benchmarks.
While Pritchard said tech trades tend to follow a “buy the anticipation, sell the news” approach with product launches, he thinks the Windows 8 launch may be different because it is designed for touch use. He added that touch technology is where the market is going and that the company has been left behind to some degree because of that.
From his talks with the company, Pritchard said there is “no reason to think that the PC (personal computer) market is going to look good for the next couple of quarters.”
Although Pritchard has a “buy” rating on the stock, he believes Windows 8’s upcoming launch will be pivotal to his future assessment of the company.
“We’re looking at it into the launch,” he said. “I think that’s going to become a pretty key milestone. If we become convinced that product is going to sell well and PC makers get behind it, then I think the stock has legs. If not, I think we have to reassess.”
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Citi owns stock in and has an investment banking relationship with the companies mentioned in this article.