Summary:

With Microsoft, Wall Street tends to focus on the negative when it should keep an open mind about the many options available to the next CEO, said Nomura analyst Rick Sherlund.

Microsoft, which typically gets the short end of the stick when it comes to financial analyst comments, is starting to get some credit for being the money-making machine it is. However, much of that new-found respect is due to an impending CEO succession.

Citing the upcoming management change and other factors including the possible divestiture of Xbox and Bing (which I would say is a bit of a stretch) Nomura Securities analyst Rick Sherlund said Microsoft’s earnings per share for its 2015 fiscal year kicking off July 1, 2014 could hit $3.80 — considerably higher than his current estimate of $2.70. And he raised his target share price to $45 from $40. As of Wednesday morning, Microsoft was trading at just under $38.00 per share, following a run up since the company announced better-than-expected Q1 earnings last week.

In a note sent under the subject line: “Action plan for new CEO, Sherlund wrote that shareholders:

“are being caught ‘off sides’ on Microsoft, still focusing on what could go wrong with the fundamentals, rather than what could go right with new management and likely changes in cost structure, disposition of money losing consumer businesses Bing and Xbox, corporate governance changes and financial engineering potentially extracting a lot more value out of the current assets.’

Sherlund also expects Ford CEO Alan Mulally to succeed Ballmer. News that Ford promoted a raft of younger executives to top positions may indicate that Mulally will will make the move.

Sherlund also posited that once Ballmer steps down as CEO, he might sell his shares and leave the Microsoft board as well, a thought that AllThingsD’s Kara Swisher swatted down. Microsoft had no comment on the Sherlund report.

It would be natural for Ballmer to sell some shares — why not? However if he did completely divest his stake in the company, it could signify a real rift between him and Microsoft chairman Bill Gates — a long time friend and colleague. Indeed, speaking privately, Microsoft insiders suspect Ballmer only decided to step down because he had lost Gates’ backing.

In his letter to shareholders published a few weeks back, Ballmer wrote that after delivering more than $200 billion in operating profit over the last 10 years, “I’m optimistic not only as the CEO but as an investor who treasures his Microsoft stock.”

In other words, watch this space.

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