Goldman Sachs Upgrades Microsoft To Neutral, Removes From Sell List

• Microsoft Corporation MSFT shares have appreciated 25.88 percent over the past three months, almost touching their 52 week high on December 16, at $56.13.
• Goldman Sachs’ Heather Bellini has upgraded the rating on the company from Sell to Neutral, while raising the price target from $45 to $57.
• Bellini mentioned tha the stock has appreciated 84 percent since its was added to Goldman Sachs’ Sell List in 2013, as compared to the 29 percent appreciation in the S&P.

Analyst Heather Bellini stated, “We failed to appreciate that the stock would disconnect from downward EPS revisions, and the significant upward rerating of the multiple driven by MSFT’s transition to the cloud.”

Although Bellini still believes that the consensus EPS expectations for FY17 and FY18 are too high, the ongoing successful transition to the cloud suggests that the multiple is unlikely to come under pressure.

Bellini also believes that there are several positive fundamental catalysts for Microsoft in 2016, such as the continuing successful transition to the cloud and gross profit dollars likely to continue to grow despite gross margin pressure.

Some of the other positive catalysts for 2016 include positive non-GAAP EPS growth, an end to multiple headwinds and acceleration in dividend growth.

“We are increasing our out year non-GAAP EPS estimates, driven primarily by faster gross margin expansion in Office 365 and Azure,” Bellini added.