Microsoft (MSFT) Stock Is Not a Sell – Goldman and Citi Are Wrong

Now that two of Wall Street's biggest names have put an unusual "sell" rating on Microsoft Corp. (Nasdaq: MSFT) stock, investors might be tempted to dump shares of the tech giant.

That would be a mistake.

But before we get into why Goldman Sachs Group Inc. (NYSE: GS) and Citigroup Inc. (NYSE: C) are wrong about Microsoft stock, let me share with you what they don't like about the Redmond, Wash.-based company.

Goldman was the first to make the negative call back in early April.

"We are reiterating our Sell rating on Microsoft, as we continue to see risk to both revenue and EPS forecasts for the remainder of this fiscal year, as well as for FY16 and FY17," wrote Goldman analyst Heather Bellini. "We see consensus estimates as too aggressive."

The consensus one-year Microsoft stock price target is $48.19. At the time Bellini put a 12-month $38 target on MSFT stock, later nudging it up to $40. That's 16% below the current price of $47.60.

Bellini and her team see "headwinds" for Microsoft's main businesses. Specifically:

• Windows will continue to face tough compares this year, as people last year were compelled to upgrade their machines when Microsoft ended support for Windows XP.
• The Commercial unit also faces tough compares because last year Microsoft had steep price hikes on many of its server products.
• Windows 10 won't bring in much revenue for a while, as Microsoft plans to offer it initially as a free upgrade.
• PC sales forecasts are flat.
• The shift from one-time licenses to subscriptions for products like Office will stretch revenue out over a longer period and decrease margins.

Citi Matches Goldman's Sell Call on MSFT Stock

Two weeks later Citigroup slammed MSFT stock.

"We rate shares of Microsoft a Sell. We believe shares are being buoyed by excitement around new CEO Nadella and cloud services," wrote Citigroup analyst Walter Pritchard. "MSFT is wrestling with difficult strategic issues where we believe there are no easy answers."

Specifically, Pritchard took issue with:

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