Why 3 Major Analysts Are Calling for Over 20% Upside at Microsoft

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Microsoft Corp. (NASDAQ: MSFT) made a big move this week with its acquisition of Activision Blizzard Inc. (NASDAQ: ATVI), but the tech giant has a lot more on its plate with its earnings coming up next week. Even though Microsoft is dishing out nearly $70 billion in its largest acquisition ever, the company easily can make that in just a couple of quarters.

As it stands now, Microsoft ranks as the second-largest company in the world by market cap, coming in at $2.22 trillion. While Apple might outpace Microsoft in this regard, Microsoft still runs the dominant operating system on the planet, and one of the largest cloud networks, and it is even now one of the largest video game companies.

Looking ahead to earnings next week, analysts have a lot to consider for this tech titan. Currently, the consensus forecast calls for $2.31 in earnings per share on $50.88 billion in revenue. That compares to $2.03 in EPS on $43.08 billion in revenue in the same period last year.

Here is a look at what three analysts think about Microsoft ahead of earnings.

Cowen reiterated an Outperform rating with a $360 price target, implying upside of 19% from the most recent closing price of $301.60. According to the report, Cowen is expecting another solid earnings report with an emphasis on Azure growth. The brokerage firm models Azure growth of 45% and sees this translating to steady growth.

At the same time, Cowen sees potential for strong M365 demand ahead of price hikes, as well as continued execution from LinkedIn, PowerApps and Dynamics ERP. Although the firm expects tougher PC/Server dynamics, it expects strengthening trends for 2022. Also, the firm expects the guidance for the March quarter to be slightly above Wall Street estimates.

BofA Securities reiterated a Buy rating with a $365 price target, implying upside of 21%. The firm gave a few bullet points for call:

  • Firms are increasingly migrating mission-critical workloads to Azure, which should drive upside.
  • O365 subscription growth sounds stronger, and the average selling price growth of 5% could result in over $200 million upside.
  • PC should see over $250 million upside, considering higher than expected PC shipments in the calendar fourth quarter of 2021.

Citigroup reiterated a Buy rating but lowered the price target to $376 from $407, implying upside of roughly 25%. The firm noted that it sees a modestly positive set-up for the fiscal second-quarter earnings. Citigroup expects overall growth durability to show through with positive partner takeaways.

Overall, Citigroup expects strength in Enterprise Agreement renewals and O365/Dynamics, while Azure revenue growth could potentially moderate with tougher comps and seasonally weaker bookings from last quarter. The firm believes second-quarter results will continue to accentuate broad-based growth drivers at Microsoft, with sustained revenue and operating income growth at scale.

Microsoft stock was last seen trading at $301.60 on Thursday, in a 52-week range of $222.42 to $349.67. The consensus analyst price target is $371.23.

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