Stifel Raises Microsoft Price Target After 'Big Wow' Of A Quarter

Microsoft Corporation MSFT reported Thursday afternoon with a "big wow" of a fourth-quarter report that turned Stifel incrementally bullish.

The Analyst

Stifel's Brad Reback maintains a Buy rating on Microsoft with a price target lifted from $107 to $118.

The Thesis

Microsoft's fiscal Q4 print confirms that the tech giant's momentum across multiple product and services lines — hybrid, intelligent cloud/intelligent edge and gaming — remain strong, Reback said in a note. (See the analyst's track record here.) 

The analyst said the momentum should be sustainable in coming quarters for the following reasons: 

• A favorable IT and macro environment.
• The ongoing Win10 replacement cycle.
• Strong execution from the sales force.
• Ongoing expense discipline.

One "lone nit" was present in Microsoft's earnings report, Reback said: a miss on the cash flow line, as CFFO of $11.42 billion fell short of the $12.6 billion the analyst expected and the Street's model of $12.98 billion. Yet the cash flow miss was mostly due to multiple one-time items in the quarter, such as tax payments related to ASC 606 and TCJA, along with an earlier-than-expected start on building holiday-related inventory, he said. 

Microsoft remains attractive based on strong ongoing execution, attractive capital return of more than $20 billion annually and a "constructive" valuation at 18 times 2020 EV/FCF versus 14 to 19 times for mega-cap peers, according to Stifel. 

Price Action

Microsoft shares were trading higher by 2.95 percent off the open Friday. 

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