4 Investors Make The Case For Microsoft Stock After Analyst Slashes Price Target

Zinger Key Points
  • Requisite Capital Management's Bryn Talkington largely agreed with the rest of the panel, but warned valuations could fall further.
  • She told CNBC that despite anticipating further multiple contraction, she owns Microsoft shares and plans to hold long term.

Microsoft Corp MSFT was featured as the call of the day Monday on CNBC's "Fast Money Halftime Report."

What Happened: Jefferies cut price targets on a group of software stocks, including Microsoft Corp MSFT, by about 22%, citing economic headwinds and ongoing recession risk.

Analyst Brent Thill maintained Microsoft with a Buy rating and lowered the price target on the stock from $400 to $325.

Why It Matters: Several CNBC panel members shared Thill's sentiment in relation to software stocks as a whole, but they took a different stance on Microsoft.

Cerity Partners' Jim Lebenthal said most of the growth stocks in the software sector are valued on sales, but Microsoft has strong earnings and its valuation relative to those earnings is fair, he said.

Douglas C. Lane & Associates' Sarat Sethi highlighted Microsoft's cash flow as a point of strength.

"If you look at kind of what's going to happen over the next couple of quarters, I mean they're going to be sitting there with increased cash flow, they can buy back more shares, they can increase their dividends or they can actually, you know, reinvest back in the business," Sethi said.

See Also: Here's How Much $100 Invested In Microsoft 20 Years Ago Would Be Worth Today

Virtus Investment Partners' Joe Terranova said the cost of capital is still a moving target as the Fed continues to hike rates to fight inflation, which pressures long-duration assets. 

He agreed that Microsoft's free-cash-flow generation is what sets it apart from the other software names that had price targets trimmed at Jefferies.

Requisite Capital Management's Bryn Talkington largely agreed with the rest of the panel, but warned that valuations could still fall further.

"I do think though, because we are in this different type of environment, that the multiple of Microsoft could easily come down because it's not what multiple we should or shouldn't pay, it's what multiple the market wants you to pay," Talkington said.

She told CNBC that despite anticipating further multiple contraction, she owns Microsoft shares and plans to hold long term.

MSFT 52-Week Range: Microsoft shares have traded between $243 and $349.67 over a 52-week period.

According to data from Benzinga Pro, the stock was up 2.97% at $260.06 Monday afternoon. 

Photo: courtesy of Microsoft.

Posted In: Bryn TalkingtonCNBCJim LebenthalJoe TerranovaSarat SethiLong IdeasPrice TargetAnalyst RatingsTechMediaTrading Ideas