Microsoft Analyst Roundup Following Q2 Results

Microsoft Corporation MSFT reported fiscal Q2 earnings Monday which signaled potential difficulties ahead. Investors responded by selling shares and and sent the stock down approximately 10 percent Tuesday morning to $42.35.

Analysts gave mixed perspectives on the results. Below are highlights along with current ratings and price targets.

Nomura - Neutral, $50 price target

“After a lengthy 16-month period of multiple expansion for Microsoft’s stock, we see a tougher transition ahead, and move to the sidelines with a Neutral rating on the stock, down from Buy. Q2 (Dec) results were a bit ahead of expectations in revenues and earnings and Cloud revenues continued to show robust growth, but underlying trends in Windows and Office suggest a more challenging transition ahead.”

Citi - Sell, $38 price target

“Our numbers come down and street likely further, making it tough to support a stock price above $45 (15x ~$3.00). Meanwhile, Windows headwinds continue as a drag on earnings growth and in FY16 there is a wave of product launches (Windows, Office) that could impact expense run rate and focus attention on the economically undesirable consumer businesses.”

Deutsche Bank - Hold, $44 price target

“The period of unusual top-line out-performance in FY14 is being reversed in FY15. The challenge for the stock is that this is not being fully offset by margin upside, as GMs are trending down by 400-500bps given the hardware mix shift and as spending on W10 and MSFT’s cloud services ramps. Bottom line, our FY15 GAAP EPS estimate is moving to $2.33, down 11.5 percent y/y and down from $2.49.”

FBR & Co. - Outperform, $53 price target

“We believe Nadella's cloud vision is taking hold, and that Microsoft remains well positioned and laser-focused in strong secular growth areas (e.g., cloud). We believe its core cloud products (e.g., Azure/ Office 365) and scalable global architecture represent key differentiating factors that will continue to attract an increasing number of subscribers as enterprises evaluate/embrace cloud providers and their services over the coming quarters/year, while recent restructuring efforts should make it a ‘leaner and meaner’ technology giant.”

Credit Suisse - Outperform, $55 price target

“While we are disappointed with Microsoft's FQ3 outlook and commentary for the fiscal year, we believe multiple options exist for Satya Nadella and Amy Hood to unlock shareholder value, including (1) rationalizing the cost structure of the company (which management is already undertaking), (2) potentially divesting/exiting non-core businesses, (3) optimizing the capital structure (as evidenced by the announced fast-tracked share repurchase program) and/or (5) accelerating the shift to Office 365 (i.e., ‘pull a full Adobe’).”

Morgan Stanley - Equal-weight, $54 price target

“Given the lower priority for infrastructure software we've seen in our recent CIO surveys and weak results from several infrastructure competitors, we would await further confidence the slowdown from 11 percent to 5-7 percent constant currency commercial billings does truly represent tough comps, and not more systemic issues facing Microsoft's enterprise business, before getting more aggressive on MSFT.”

Summit Research - Hold, $43 price target

“Strength in F2Q came from cloud (Azure, WS, Office365, Dynamics CRM, System Center and SQL- now with fault tolerance), along with robust subscription and better phone/Surface Pro3 sales. Transactional revenue slowed in F2Q impacting several segments in Commercial and showed up in China/Japan regions. Guidance was light compared to prior consensus. The stock looks to us to be priced near fair value at 10.8x EV/FCF, compared to large cap peers at 11.5x.”