Microsoft's Enduring Advantage Keeps Analysts, Investors Bullish

For many of today’s tech investors, it’s all about growth. While it may not be able to compete with the likes of Amazon.com, Inc. AMZN or Netflix, Inc. NFLX in terms of growth, Microsoft Corporation MSFT does one thing better than most of the rest of the tech sector: earn cash.

Analyst's Take: Why Not Buy?

According to Bernstein analyst Mark Moerdler, Microsoft’s pivot to cloud services and subscription revenue has the company well-positioned to continue to deliver solid revenue growth and massive earnings.

In a new research note, Moerdler wrote that all of that cash makes Microsoft a compelling valuation play for tech investors.

“Looking at Microsoft on a FCF basis, even using consensus expectations, which are significantly lower than ours, Microsoft if cheaper than their peers,” he explained.

Related Link: What Is Ransomware, What Are 'Worms' And How Do You Stop Them?

Microsoft currently trades at a P/FCF ratio of under 14. Salesforce.com, inc. CRM, Adobe Systems Incorporated ADBE and Splunk Inc SPLK all currently trade at P/FCF ratios of over 30.

Moerdler also praised Microsoft management for the transparency they provided to shareholders throughout the complicated business transition. Since Bernstein first initiated an Outperform rating on Microsoft in September 2011, the stock has surged from around $25 to nearly $70.

Now that Microsoft’s business transition is complete, Moerdler expects its bull story to transition as well. The stock’s last several years of outperformance have come mostly from multiple expansion, but he predicts the next several years of growth will come from a ramp in earnings and revenue.

Despite Microsoft’s big run since 2011, Bernstein maintains its Outperform rating and has an $81 price target.