Wunderlich: Hold Microsoft As It Makes Transition To 'Mobile, Cloud World'

In a report published Tuesday, Wunderlich analyst Rob Breza initiated coverage of

with a Hold rating and a price target of $52. Microsoft's transition from being a Windows company to a new-age mobile cloud first world provider is expected to drive revenue growth and margins over time. The transition involves moving away from up-front license agreements to a subscription based revenue model. "In our opinion, MSFT's cloud platform Azure and cloud applications such as office 365 are under-appreciated and will likely be key pillars to MSFT growth going forward," analyst Rob Breza mentioned. Microsoft is expected to benefit from an increase in IT spending in both consumer and enterprise segments. "We believe that as PC trends stabilize combined with easier comparables, MSFT could outperform," Breza added. The company's existing customer offers it an advantage to sell new products. The shift to cloud offerings will allow Microsoft to offer more sophisticated products in the SMB market. Microsoft reported its 3Q15 revenues and EPS ahead of expectations. The company guided to 4Q revenues and EPS of $21.95B and $0.54 at the midpoint, well below consensus estimates of $22.7B and $0.61, respectively. "We believe this lowered bar should allow the company to outperform estimates going forward," the report stated.