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Rosenblatt Securities analyst John McPeake launched Microsoft stock coverage with a buy note. He believes the software giant’s shares can rise 50% over five years.
Jeenah Moon / Getty Images
Microsoft
action improves on Thursday by Rosenblatt Securities analyst John McPeake, which took over the software giant’s cover with a purchase note. The analyst’s target price of $ 301 implies a potential gain of almost 25%.
McPeake sees Microsoft (symbol: MSFT) as a company with unmatched assets: over a billion devices running the company’s software, the world’s largest developer ecosystem, and huge revenue from more and more sources. recurring.
“Microsoft is the largest software publisher on the planet, with over 1.3 billion devices running. Windows 10, more than 1.2 billion users of Microsoft Office, 1.2 billion identities in their Azure Active Directory, and a 10-fold increase in daily activity Teams users over the past year only at 145 million, â€McPeake wrote in a research note.
He adds that the company has 756 million members on LinkedIn, and more than 100 million monthly active users on Xbox live. “The number of critical Excel files is in the trillions, and Microsoft also has the world’s largest community of software developers with over 55 million unique users on GitHub», Writes the analyst. “With their Azure offering cloud services, Microsoft has risen to second place by gaining market share in cloud computing, and recurring revenue streams account for 75% of estimated revenue for the next 12 months. “
McPeake believes Microsoft can grow revenue in mid-teens while moderately increasing operating margins over the next five years, “driving annual earnings per share and free cash flow growth in mid-teens.” adolescence “. He believes the stock may appreciate 35% over the next three years and 50% over five years.
The analyst concedes that at 31 times earnings for the next 12 months, the stock is trading at a historically high valuation compared to an average of 19.4 times over the past decade. He also notes that the stock is trading just a little above its historic valuation against the
S&P 500
-1.4 times the price / earnings multiple of the index, compared to 1.2 times the historic.
But McPeake adds that “even over the past five years… Microsoft’s revenue mix has shifted in a direction that we believe supports this significantly higher absolute earnings multiple. At this point, Microsoft has much higher revenue visibility and repeatability, which we believe dramatically increases the company’s long-term valuation compared to its historical averages. “
Microsoft stock in Thursday afternoon trading was up 1.4% to $ 242.31. The S&P 500 is up 0.8%.
Write to eric.savitz@barrons.com
