Microsoft Corp. (NASDAQ: MSFT) has not yet joined the waves of companies reporting earnings, but many analysts have raised targets and expectations ahead of its report. Credit Suisse reiterated its Outperform rating on Microsoft on January 18. What stood out what how high the price target was raised. That target went up to $115 from what was already an upside target of $95. Also, this higher target is among the most aggressive targets on Wall Street, and it is also handily above what the firm had listed as its prior upside case.

Credit Suisse’s Michael Nemeroff sees Microsoft’s cloud momentum continuing at least through 2018. He also outlines what options Microsoft has for a large repatriation of cash. As seen after Apple’s repatriation announcement, Microsoft is one of the key players in 16 companies hoarding $1 trillion in cash.

After a new proprietary survey, cloud dominance has Amazon Web Services (AWS) and Microsoft’s Azure now named as the preferred vendors by 81% of those surveyed. That’s up from 72% just six months ago and 70% a year earlier. Additionally, 47% of those surveyed have adopted Office 365, and 35% have adopted Windows 10. Another 37% of those surveyed plan to upgrade to Office 365. Over 50% of the responses indicated that they would upgrade to the next Office 365 subscription pricing tier for better features and products.

On the dominance of the cloud, Credit Suisse’s report said:

Our new, proprietary survey data gives us increased confidence that growth in Azure should remain robust over the next several quarters, at least. … We continue to expect Azure to gain market share in the IaaS/PaaS markets due to its competitive differentiators (i.e., hybrid-cloud platform, enterprise-grade capabilities, and hyperscale infrastructure) and market/product positioning (i.e., open ecosystem, interoperability, and enterprise edge/IoT).

As far as what Microsoft could do with its cash, the firm estimates that roughly $132 billion is held by foreign subsidiaries. That would be $112 billion after taxes. Nemeroff noted that Microsoft could issue a one-time special dividend of $14 per share. A payment that large was considered unlikely, but the combination of a smaller one-time dividend of $6 to $9 per share and an increase in share buybacks looks more likely.

While there may be large acquisition opportunities, Nemeroff does not see much of the repatriated cash as a catalyst for an uptick in M&A activity by Microsoft.

On top of the shares now coming with significant upside, Nemeroff has Microsoft as a top large-cap pick. He sees strong cash flow growth and earnings power potential lasting for the next several years, along with significant commercial cloud growth and higher cloud gross margins.

Credit Suisse’s new $115 target price implies a calendar 2018 multiple of 17.6 times Microsoft’s enterprise value to operating cash flow and implies roughly 28.6 times earnings.

Credit Suisse also raised its upside and downside levels. The so-called blue sky scenario was raised to $125 from a prior level of $105. The grey sky scenario was raised to $70 from a prior $68.

Microsoft shares were up almost 0.5% at $90.55 in mid-afternoon trading on Thursday. Thomson Reuters now has a consensus analyst price target of $96.00, up from $92.13 just 30 days ago and $81.28 just 90 days ago. The company now boasts a $698 billion market cap.

To put this $115 price target in perspective, the highest price target for any Microsoft analyst is $120. This price target implies another 27% upside ahead, and there is also the dividend yield of 1.85% (with a higher dividend expected later in 2018) that would be added to the expected gains for a total return forecast. When 24/7 Wall St. ran its 2018 bull/bear views for the market, the expectation was only for a gain of just over 10% in 2018.

Microsoft is set to report earnings after the close of trading on January 31. As a reminder, with a June year-end, this will be Microsoft’s fiscal second quarter rather than the fourth quarter that most companies will be reporting. Stay tuned.

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