Nomura Upgrades Microsoft On 2016 Acceleration

In a report published Friday, analysts at Nomura upgraded

from Neutral to Buy, while maintaining the price target at $50. The analysts expect the company's performance to accelerate in 2016. Although the company reported its Q3 results marginally better than the guidance, there were signs of difficult year-on-year comps and weakness in the core business, with progress in the transition to the cloud. Microsoft is expected to see difficult comps for the next two quarters as well, although the business seems to be improving with Azure posting positive gross margins and a sharp expansion in margins for Office 365 of 60 percent to 80 percent. "By calendar 2016, we believe organic cc growth returns to low single digits with growing cloud business and earnings growth can potentially be restored to 10% or so with the leverage of share repurchase, and continued strong cash flow generation," the analysts said. While Microsoft is likely to witness a transition period over the next few quarters, the analysts expect the company to emerge with stronger growth potential. Cloud conversions are also expected to gain traction. "[B]y 2016 we may begin to see rising revenues for the combined Office franchise given high interest and migrations among business users to Office 365 and new cross platform productivity tools for Windows, iOS and Android," the analysts added.