What Analysts Are Saying After Microsoft Hit All-Time High

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After Microsoft Corp. (NASDAQ: MSFT) reported fiscal first-quarter financial results on Thursday, shares hit highs not seen since 1999. Here, 24/7 Wall St. has included a few highlights from the earnings report, as well as what analysts are saying after the fact.

The company posted $0.76 in earnings per share (EPS) and $22.3 billion in revenue. Consensus estimates from Thomson Reuters had called for EPS of $0.68 on $21.71 billion in revenue. The same period of last year reportedly had $0.67 in EPS on revenue of $21.66 billion.

One of the key highlights from the report was that Azure revenue grew 116% (up 121% in constant currency) with Azure compute usage more than doubling year over year.

Also, Microsoft expects to close the acquisition of LinkedIn and the sale of its entry-level feature phone business in the second quarter of fiscal year 2017.

Merrill Lynch raised its price objected to $68 from $65, based on Microsoft’s underappreciated free cash flow generation of $3 per share that it expects in fiscal 2017. Plus the tailwinds from seven-year Windows itch and Azure gross margin should play out favorably for the stock.

S&P reiterated a Hold rating and raised its price target to $60 from $57. The firm detailed in its report:

We raise our 12-month target by $3 to $60. Peers have a median forward P/E of 22-times and a P/E-to-growth ratio of 2.0. Using these and averaging the outputs results in our target. We lower our EPS estimates for fisacl [sic] 2017 (Jun.) to $2.95 from $3.23 and fiscal 2018 to $3.23 from $3.43. Microsoft posts September-quarter non-GAAP EPS of $0.76 vs. $0.70, $0.08 above our estimate. Revenues rose 3% (5% with constant forex), with Intelligent Cloud up 8% (10%) and More Personal Computing down 2% (1%). We see Microsoft executing well, but believe the fiscal 2017 P/E of 20-times is appropriate. The indicated dividend yield is 2.6%.

Oppenheimer reiterated an Outperform rating with a $62 price target. The firm gave its bottom line as follows:

Microsoft is gaining momentum throughout its cloud portfolio as it continues to introduce new products and services with a focus on AI, security, and hybrid cloud (and open-source) solutions. The company is executing on the right strategy at the right time, while widening its moat and defending/expanding a sticky revenue base in a market with increasing barriers to entry.

Jefferies reiterated an Underperform rating and raised its price target to $43 from $40. The brokerage firm expanded on its rating:

Those who thought Coach Bill Belichick’s rant on the Surface was a premonition of the fiscal first quarter will be relieved as Microsoft has exceeded expectations (except for fiscal second quarter guidance). Mr. Belichick knows a loss hurts, but it’s the long haul that counts. Relative to business momentum, the results were “okay” at best, and it’s too early to claim success in transforming the business. It seems the market thinks otherwise given where Microsoft trades, which we consider as grossly overvalued.

Other analysts weighed in on Microsoft as well:

  • Barclays has an Overweight rating and raised the price target to $65 from $60.
  • BMO has an Outperform rating and raised its price target to $69.
  • Canaccord Genuity has a Hold rating and raised the price target to $60 from $56.
  • CLSA raised its price target from $60 to $65.
  • Cowen has an Outperform rating and raised its price target to $64 from $62.
  • Deutsche Bank raised its price target to $70 from $65.
  • Goldman Sachs has a Neutral rating and raised the price target from $57 to $60.
  • Nomura has a Buy rating and raised its price target to $68 from $65.
  • Raymond James has a Strong Buy rating and raised the price target to $69 from $65.
  • RBC has an Outperform rating and raised its price target from $61 to $65.
  • UBS has a Buy rating and raised its price target to $66 from $64.

Shares of Microsoft closed Friday up 4.2% to $59.66, with a consensus analyst price target of $59.79 and a 52-week trading range of $48.04 to $60.45.