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What Are Wall Street's Top Analysts Saying About Microsoft Post Q4?

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What Are Wall Street's Top Analysts Saying About Microsoft Post Q4?

Shares of Microsoft Corporation (NASDAQ: MSFT) were trading lower by around 0.50 percent Friday afternoon after the company reported its fiscal fourth-quarter results. Here is a roundup of what some of Wall Street's top analysts are saying after the print.

Wells Fargo: Strong Execution

Microsoft proved it is seeing strong execution across every segment, Wells Fargo's Philip Winslow commented in a research report. Of particular note, the company's cloud segment, Azure, showed a 97 percent revenue growth, which marks an acceleration from 93 percent in each of the prior two quarters. The segment also benefited from its 12th consecutive quarter of triple-digit revenue growth in Azure premium services.

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Also, a higher mix of cloud services resulted in a lower-than-expected gross margin and operating expenses came in higher-than-expected as well. But the company still reported a total gross profit of $16.244 billion, which came in ahead of the $16.048 billion analysts were expecting.

Bottom line, Microsoft's earnings report is supportive of the analyst's bull thesis that investors aren't fully appreciating the company's opportunities in Azure and Office 365.

Shares remain Outperform rated with a price target boosted from $81.25 to $82.50.

Credit Suisse: Microsoft A Top Pick

Credit Suisse's Michael Nemeroff maintains an Outperform rating on Microsoft's stock with an unchanged $84 price target. The company re-affirmed in its report the bullish case for owning Microsoft's stock as it foreshadowed the true "earnings power potential" over the next few years.

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Microsoft will be able to carry its momentum forward given the significant growth opportunity in the cloud along with higher cloud gross margins over time.

Barclays: Strong Momentum

Barclays' Raimo Lenschow maintains an Overweight rating on Microsoft's stock with a price target raised from $77 to $82 after the company beat every P&L metric in its report.

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Some of the highlights in the quarter include:

    1. Office 365 is now generated more revenue than on-premise.
    2. Azure's momentum and gross margins remain encouraging and the annualized cloud run rate of $18.9 billion represents around 20 percent of total revenue.
    3. Management offered once again a conservative guidance.
    4. Management's operating margin guidance instead of opex guidance implies it has "increased confidence" in revenue and margin growth.

BMO: Free Cash Flow In Focus

Microsoft's free cash flow generation of $8.72 billion in the quarter was "very good" and represents a 50 percent year-over-year growth, BMO Capital Markets' Keith Bachman noted. The analyst now expects Microsoft's free cash flow to total $33.82 billion in fiscal 2018 and $35.76 billion the year after which will represent around 32 percent of total revenue.

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Meanwhile, Microsoft bought back $11.79 billion worth of its own stock in fiscal 2017 which represents 38 percent of total free cash flow. The company is also expected to repurchase $10 billion of stock in each of the next two years.

Bachman maintains an Outperform rating on Microsoft's stock with a price target boosted from $75 to $86.

Bernstein: Investing For The Future

Microsoft's guidance implies a return to investment in management's strategy but this isn't any reason for concern, Bernstein's Mark Moerdler noted. The company's investment spend is a direct result of increased opportunity on the top line and as such should lead to higher than expected revenue in the future.

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Moerdler maintains an Outperform rating on Microsoft's stock with a price target boosted from $81 to $87.

Elsewhere On The Street

  • UBS's Fatima Boolani maintains a Buy rating on Microsoft's stock with a price target boosted from $73 to $82.
  • Citi's Walter Pritchard maintains a Neutral rating on Microsoft's stock.

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Latest Ratings for MSFT

DateFirmActionFromTo
Dec 2020CitigroupUpgradesNeutralBuy
Dec 2020B of A SecuritiesReinstatesBuy
Nov 2020KeyBancInitiates Coverage OnOverweight

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