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Analysts found few things to gripe about in Microsoft Corp.’s latest earnings report as the stock ticked slightly higher in premarket trading Thursday.
The company posted earnings that easily topped estimates late Wednesday but showed that growth rates for the Azure cloud computing business are continuing to drop. Shares were up 1.2% premarket on Thursday.
Jefferies analyst Brent Thill wrote that Microsoft
MSFT, +0.64%
was “poised to weather any storm” and keyed in on management’s belief that the company is only in the first inning with several of its business areas, including data, artificial intelligence, and some security efforts.
“Management noted that given its investments and growth drivers it believes it can sustain this strong business momentum in the face of any macro concerns,” wrote Thill, who has a buy rating and $160 price target on the shares. “This is supported, in our opinion, by several growth drivers including Office 365, Microsoft Teams and PowerBI in addition to the already hypergrowing Azure.”
Evercore ISI’s Kirk Materne heaped on the praise as well, writing that Microsoft was “firing on all cylinders” with continued strength in the cloud that’s supporting significant operating leverage and cash-flow growth.
“While the 2Q More Personal Computing revenue guide was slightly below Street expectations, this is largely related to a headwind in the gaming business and the company is expecting the momentum in the Commercial business to persist in F2Q/2H,” he wrote.
Materne rates the stock at outperform and also has a $160 target.
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Bernstein’s Mark Moerdler cheered Microsoft’s “execution excellence”, writing that while Azure’s constant-currency growth was a bit lower than he had been projecting, the company showed strong server and tools growth.
“The business model continues to bend the curve, leading to operating profit growth comfortably in the double digits,” wrote Moerdler, who has an outperform rating and $167 target price on the shares. “We believe the story is long from over. After SAP’s weakness earlier in the day, Microsoft’s results should help investor sentiment.”
Cowen & Co.’s Nick Yako discussed Microsoft’s partnership traction and highlighted an expanded deal with SAP that positions Microsoft as the partner of choice for those looking to move their enterprise resource planning from on-premise to the cloud. “The fact that SAP opted to extend the partnership exclusively with Microsoft – while still providing customers flexibility to leverage [Amazon.com Inc.’s] AWS or [Alphabet Inc.’s] GCP – gives us confidence that customers are increasingly viewing Azure as the cloud platform of choice,” he wrote.
Yako has an outperform rating and $155 target price.
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Macquarie analyst Sarah Hindlian said that Microsoft’s forward looking commentary came as a “relief” as the company now projects that operating margins will tick up, compared with a prior forecast that called for them to stay flat.
“We think Microsoft is executing remarkably well on its transition to the cloud, delivering and timing product cycles to maintain growth with tight cost controls, effectively investing in leading product sets, and delivering growth at record scale,” wrote Hindlian, who has an outperform rating on the stock and a $160 price target.
Of the 33 analysts tracked by FactSet who cover Microsoft’s stock, 31 have buy ratings and two have hold ratings. The average price target is $160.17, about 17% above Wednesday’s close.
Shares have gained 35% so far this year, as the Dow Jones Industrial Average
DJIA, +0.17%
has risen 15%.
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