Morgan Stanley Upgrades Microsoft To Overweight Ahead Of Q2 Results
- Microsoft Corporation (NASDAQ: MSFT) shares have plunged 4 percent over the last 5 trading days.
- Morgan Stanley’s Keith Weiss upgraded the rating for the company from Equal-weight to Overweight, while raising the price target from $57 to $66.
- The company could continue to generate total return in mid-teens, Weiss stated.
While Microsoft’s EPS growth has been stagnant over the past 5 years, analyst Keith Weiss believes that “the trend line is poised to inflect upwards.”
Weiss said that a dividend yield of about 3 percent, and a projected EPS CAGR of around 10 percent for FY15-FY18 translates to a total return profile of about 13 percent, which is higher than the S&P at about 8 percent. This should boost Microsoft’s shares.
The analyst enumerated the components of Microsoft’s mid-teen return as:
- Durability of Growth – Weiss believes the company would be able to generate a revenue CAGR of about 7 percent in FY16-FY18, with the drivers being the Azure, Data center and Office 365.
- Operating Margin Expansion – Weiss expects the company’s margins to improve each year through FY18, backed by continued strong opex controls and gross margin expansion in thecloud businesses, which would offset mix shift.
- Aggressive Capital Return – Weiss projected 3 percent dividend yield and significant share buybacks, stating that Microsoft had hiked its dividend by an average of 18 percent per year over the past 5 years, “a trend we see sustaining as EPS growth returns.”
“Microsoft has a strong public cloud positioning, datacenter share gains, a durable Office franchise, and less risk in Windows bolsters our confidence,” the Morgan Stanley report noted.
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|Oct 2016||William Blair||Upgrades||Market Perform||Outperform|
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