Wunderlich Raises Target On Microsoft From $70 To $75 Following Strong Q2

Microsoft Corporation MSFT reported its Q2 2017 revenue and EPS significantly ahead of expectations. Going ahead, the key indicators of the company’s success would be the performance of Dynamics 365 with the integrated LinkedIn functionality and the extent of Office 365 and Azure premium adoption, Wunderlich’s Ryan MacDonald said in a report.

MacDonald reiterated a Buy rating on the company, while raising the price target from $70 to $75.

Strong Q2 Results

Microsoft reported its quarterly non-GAAP revenue at $26.1 billion, ahead of the consensus estimate of $25.28 billion. Non-GAAP EPS came in at $0.83, versus expectations of $0.79. Despite being impacted by currency headwinds, the company generated 2 percent revenue growth.

Revenues were driven by 93 percent growth in Azure revenue and 47 percent growth in Office 365 commercial revenue. Microsoft’s annualized revenue run rate for commercial cloud now exceeds $14.0 billion, up from $13.0 billion in Q1, MacDonald pointed out.

The productivity and business processes segment recorded 10 percent year-over-year growth, with strength in Office 365 and a contribution of $228 million from LinkedIn. The Intelligent Cloud reported 8 percent growth, driven by Azure. More personal computing declined 5 percent, with weakness in gaming.

FY 2017 Outlook

Microsoft guided to 3Q revenue of $23.15 billion–$23.85 billion, significantly ahead of the consensus estimate of $22.64 billion. The guidance includes a LinkedIn contribution of $950 million.

The guidance includes a 100bps currency headwind and higher operating expense due to the LinkedIn acquisition, the analyst noted.

MacDonald raised the revenue estimate for FY 2017 from $93.893 billion to $96.529 billion. He reduced the EPS estimate for the year from $3.06 to $2.94.

In Friday's pre-market session, Microsoft shares were up 1.77 percent at $65.42.