The Zacks Analyst Blog Highlights: Microsoft, Nokia, Apple, Google and Discovery Communications

Oct 04, 2013, 09:30 ET from Zacks Investment Research, Inc.

CHICAGO, Oct. 4, 2013 /PRNewswire/ -- announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Microsoft (Nasdaq: MSFT-Free Report), Nokia (NYSE: NOK-Free Report), Apple (Nasdaq: AAPL-Free Report), Google (Nasdaq: GOOG-Free Report) and Discovery Communications Inc. (Nasdaq: DISCA-Free Report).


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Here are highlights from Thursday's Analyst Blog:

Will Bill Gates Step Down?

Reuters reported that three large shareholders, together holding more than 5% of Microsoft (Nasdaq: MSFT-Free Report) shares, would like Bill Gates to step down as chairman.

These shareholders wield some authority, for sure, but the fact remains that Bill Gates and Steve Ballmer together hold more than they do. Further, despite the recent uproar created by ValueAct Capital Management, the company's founder remains popular with some shareholders. So getting rid of him may not be so easy.

There are usually at least two sides to every story, and this one is no different.

The active shareholders are afraid that Bill Gates being chairman of the Board will influence the decision regarding Ballmer's successor. Since both Ballmer and Gates are old-school, they are afraid that their chosen candidate will not bring the radical change at Microsoft that they want to see.

Also, Gates sells 80 million shares every year and has been more interested in philanthropic activities of late. His declining shareholding in Microsoft could be read as a diminishing interest in the company's future, which could be detrimental for investors.

The argument in his favor is related to the turbulent times at Microsoft, which is on its way to becoming a devices and services company. The founder may be the steadying force, maintaining balance in times of rapid change. In any case, the services side has done better than the devices side on the whole, with the Xbox 360 game console giving it a leadership position.

Xbox One is a different story, however, and the company is on track to lose significant market share here. But Microsoft continues regardless, launching better versions of its Surface tablets and spending $7 billion to acquire Nokia's (NYSE: NOK-Free Report) handset business for a three-pronged approach to mobile.

Microsoft has its work cut out for itself: the main attraction for its devices is its business productivity solutions, but both Apple (Nasdaq: AAPL-Free Report) and Google (Nasdaq: GOOG-Free Report) are now offering theirs free.

Microsoft has a Zacks Rank #3 (Hold).

Discovery to Underperform

On Oct 1, 2013, we initiated our coverage on Discovery Communications Inc. (Nasdaq: DISCA-Free Report) with an Underperform recommendation. In the second quarter of 2013, the company's top and bottom lines lagged the Zacks Consensus Estimate. Moreover, management lowered its previously given financial outlook for full-year 2013.

Why Underperform?

Discovery is a pure-play non-fiction TV content developer. The non-fiction media market is highly competitive and as a leading player of this segment, Discovery is also facing fierce competition. The company's national TV networks compete with other broadcast and national TV networks. Discovery is highly susceptible to changes in the distribution and viewing of TV channels. Massive growth of personal digital video recorders (DVRs), video-on-demand technology, IPTV, smartphones and tablets may completely change the TV viewing landscape, which may jeopardize the company's business model. 

In the second quarter of 2013, Discovery was significantly hurt by higher taxes and amortization costs related to the SBS Nordic acquisition. Management also stated that the company's bottom line will continue to decline owing to the SBS Nordic acquisition. In addition, a large portion of Discovery's total revenue is generated from outside the U.S., which is susceptible to near-term global macroeconomic volatility and foreign currency exchange rate fluctuations.

Discovery currently has a Zacks Rank #4 (Sell).

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