The rally of Microsoft Corp. on the heels of strong earnings helps keep the Dow Jones Industrial Average barely in the green as pricing concerns weigh on others in the market.
Microsoft MSFT shares,
are up 2.7% in Friday morning trading after the company posted strong growth in various business segments in its fourth quarter report. At least 19 analysts raised their price targets after the report, according to a tally from FactSet.
“Microsoft continues to fire on all cylinders as the company benefits from its strong positioning in key secular computing themes (hybrid, smart cloud/smart edge, gaming),” wrote Stifel’s Brad Reback, who increased his price target at $118 vs. $107. “This, coupled with a favorable IT/macro environment, Win10 replacement cycle, strong sales force execution and expense discipline, should enable Microsoft to continue to deliver operating profit and FCF generation. accelerating over the coming quarters.”
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Highlights from Reback included Microsoft’s commercial cloud business, which reached $6.9 during the quarter, and continued strong momentum from Office 365. The “one nit,” he wrote, was Microsoft’s lower-than-expected operating cash flow, though Reback said the numbers were dragged down by one-time items like certain tax payments.
Deutsche Bank analyst Karl Keirstead, one of the most bullish analysts on the street with a price target of $130, pointed to the company’s revenue growth accelerating to 15% in constant currency during the last trimester.
“This magnitude of Microsoft-wide acceleration speaks to strong execution and traction in the cloud, as well as a very healthy overall IT spend backdrop for the business,” it said. -he writes.
Canaccord Genuity analyst Richard Davis saw many bright spots in Microsoft’s Azure numbers. He said Azure has helped improve cloud gross margins and generally sees room for better operational leverage across Azure, marketing and gaming.
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Jefferies analyst John DiFucci, Microsoft’s only bear, still found cause for concern following the latest report, although he acknowledged it was Microsoft’s “second consecutive strong quarter”. , driven by Windows.
“Microsoft has executed on its plan to become a meaningful cloud provider, although it is still early in the development of this market – and this model,” wrote DiFucci, who has an underperforming rating and price target. of $75 on the stock. “We continue to question whether Windows’ unprecedented outperformance against PC shipments is sustainable, while questioning Azure’s ultimate margins.”
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On Azure, DiFucci fears Microsoft’s Azure will never have the same profitability profile as Amazon.com Inc.’s AMZN,
AWS. “For example, we believe that AWS recorded an operating margin similar to Azure’s GROSS MARGIN while AWS was on the same scale as Azure currently,” he wrote. “We’re just saying… there’s a risk.
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Of the 34 analysts who cover Microsoft and are tracked by FactSet, 29 have buy ratings on the stock, four have hold ratings and one rates the stock as a sell. The average price target is $119.93, 12% above current levels.
Microsoft shares are up 44% in the past 12 months, while the Dow Jones Industrial Average DJIA,
gained 16%.
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