What Does The Street Think Of Microsoft Now?

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Microsoft Corporation MSFT on Thursday reported third quarter results that jolted shares higher by nearly 10 percent by Friday afternoon.

Here is a summary of what some of Wall Street's top analysts have to say about the company's results.

FBR: Nadella ‘Putting The Train Back On Track'

Daniel Ives of FBR & Co. commented in a note that Microsoft's better than expected results, coupled with a fourth quarter guidance that was "better than feared" indicate the company is back on the right track after a "head-scratching" performance last quarter.

Ives noted that the commercial segment remains Microsoft's "bread and butter." At the same time, the company saw "good performance" in cloud (Azure/Office 365) and will continue to represent a key differentiating factor over the coming years. The company also showed "solid" expense controls and restructuring efforts, turning itself in to a "leaner and meaner" technology giant.

Shares remain Outperform rated with an unchanged $53 price target.

RBC: ‘Now Back To Cloud Transformation'

Ross MacMillan of RBC Capital commented that Microsoft's results were "better" across revenue, earnings per share and cash flow while billing and bookings (adjusted for foreign exchange) showed "healthy" mid to high single digit growth while operating expense controls continued to "positively surprise."

MacMillan said that the transitional shift to the cloud will "continue to play out" and will ultimately drive higher lifetime value per customer and create new markets. Naturally, the shift will be "gradual" and a long-term model supports a higher valuation, but there exists some near-term risks such as declining Windows revenue.

Shares remain Outperform rated with a price target raised to $50 from a previous $47.

Citigroup: Not Impressed

Walter Pritchard of Citigroup commented that Microsoft's operating expenditure was "significantly' lower than he modeled and drove the majority of the $0.10 in earnings per share upside. However, the analyst added that the company's guidance suggests its earnings power will shrink again into a seasonally strong fourth quarter.

Prtichard said that a $0.56 per share guidance at mid-point is below the Street's estimate of $0.62 with drivers similar to recent history (high-margin revenue source weakness), even when factoring currency woes. The analyst did note that operating expenditure will likely hold tight in the fourth quarter making the guidance conservative.

However, "suppressed" S&M (Speed + Mobility) will likely reverse "to some degree" into fiscal 2016 with major Windows and Office launches. Moreover, the company didn't comment on fiscal 2016 operating expenditures and consensus estimates may be elevated for the year, especially if operating expenses expand.

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Shares remain Sell rated with a price target raised to $37 from a previous $36.

BMO: Another Mixed Quarter

Joel Fishbein, Jr. of BMO Capital Markets commented that Microsoft's were "mixed" as the XP "end of life hangover" and Office 365 continued to "compound a choppy" PC environment and currency headwinds.

The analyst said that Microsoft's Phone revenues and profitability "disappointed" while its overall share targets and future earnings prospects remain in question. Growth drivers, including Server, Office 365 transition, Azure and Cloud are "intact" but not large enough to offset headwinds in other divisions.

Fishbein did state that Microsoft will face easy compares when it launches Windows 10, but sustained operating expenditure reductions may be "hard pressed" and without top-line improvements, the company's earnings power will continue to be "hampered."

Shares remain Market Perform rated with an unchanged $45 price target.

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Posted In: Analyst ColorPrice TargetAnalyst RatingsTrading IdeasAzureBMO Capital MarketsCitigroupcloudDaniel IvesFBR & CoJoel FishbeinOffice 365RBC Capital MarketsRoss MacMillanWalter Pritchard
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