At a time when the broader market is showing extreme volatility, investors may want to consider buying Microsoft Corporation MSFT as it offers "better defensive positioning."
The Analyst
Macquarie Research's Sarah Hindlian's upgraded Microsoft from Neutral to Overweight with a price target lifted from $106 to $121.
The Thesis
Microsoft reported two consecutive "robust" earnings reports and there's reason to believe the momentum can continue moving forward, Hindlian said in the note.
A big part of Microsoft's growth will come from its Azure cloud business, which is differentiated from its peers as it is enterprise-friendly. It can also offer incremental services like artificial intelligence, Azure Stack, Azure Sphere, edge computing and complex workloads.
In addition to aggressively pursuing high-growth segments like the cloud, which will boast a $277 billion total addressable market by 2021 the company isn't ignoring the gaming market which will be valued at $180 billion in three years, the analyst said. In fact, the company's gaming ecosystem is built on Azure's services and the "all-you-can eat" model for subscribers along with a close relationship with developers are key differentiators.
Microsoft's stock multiple has contracted throughout 2018 from 25 times two-year out P/E to 21.5 times and from 19 times two-years out EV/FCF to 17.6 times.
Price Action
Shares of Microsoft were trading higher by nearly 3 percent to $108.80 early Friday morning.
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