(By Rich Bieglmeier) optionMONSTER reports that Microsoft (MSFT) is one of the most active stocks for options trading with 10,000 October 32 calls purchased for $0.39 to $0.43. The maker of Windows closed for trading at $30.78. To breakeven, MSFT will have trade for $32.39 to $32.43 by the time the option expires on October 19, 2012. That's a gain of 5.4% from here in 27 days.
Interestingly, MSFT is scheduled to report earnings the day before the roughly $400,000 bet's deadline. Analysts believe the monster tech company will report earnings of $0.58 for fiscal 2013's first quarter, down from $0.68 for the same timeframe a year ago.
Not including earnings, the back end of the year is likely to be loaded with news for the Dow and NASDAQ 100 constituent. Steve Ballmer, chief executive officer of Microsoft calls it "the most exciting launch season in Microsoft history." That's saying something.
Ballmer enthusiastically proclaimed, "Over the coming year, we'll release the next versions of Windows, Office, Windows Server, Windows Phone, and many other products and services that will drive our business forward and provide unprecedented opportunity to our customers and partners."
Windows Phone 8 with Nokia might launch as early as October. Windows 8-based PCs will hit retail stores on October 26, 2012 and sometime shortly thereafter, Office 2013 is expected to make its debut.
Windows Server 2012 was released for purchase by all customers around the world on September 4. It will be available to volume licensing customers in the next couple of weeks.
The first quarter earnings' conference call could be a perfect time for Microsoft's management to etch speculative release dates in stone. With solid earnings and hype surrounding new stuff, the company can build up a head-of-steam as lucky 2013 begins, maximizing the January effect for shareholders. At the very minimum, full-year 2013 guidance will have to include MSFT's expectations for the "most exciting launches in the company's history."
As it stands now, Wall Street anticipates that MSFT will earn $3.02 in the year ahead, which is 9% more than 2012. iStock feels the software king will have to rev up sales growth for Microsoft shares to command multiple expansion.
The current 2013 estimate means the stock is trading with a forward P/E of 9.33, in line with the consensus eps increase. Since Microsoft is a premium brand, it's likely to trade at a premium P/E relative to profit growth. People are willing to pay up for consistency.
The trailing twelve month price-to-earnings multiple is 15.39 versus the industry average of 26. If the new product lineup can push net income up double digits, we can see a P/E closer to 18-19 for MSFT and earnings in the range of $3.20 per share. You do the math.
Obviously, the October call options buyer could care less about Microsoft's price a year from now. Based on the chart, the stock has got some work to do to make a winner out of the buyer. Shares have a plenty of technical graffiti between $31.50 and its 52-week high of $32.95.
Even when earnings are announced, the stock has moved more than 5% in the days surrounding the announcement only twice in the last four years, despite topping the street's outlook 14 of 16.
In our view, it's going to take something special from Microsoft (MSFT) for the big bet to payoff in the next five weeks. Perhaps, the pending news barrage can make it happen – good luck!