Microsoft may be able to continue the momentum it has demonstrated over the last several quarters, and as a result, some analysts are becoming more positive on the company. In fact, it appears as if there are more positives than negatives in the software giant’s near future, according to Deutsche Bank analyst Karl Keirstead.
Shares of Microsoft edged upward after the firm’s positive report, climbing as much as 1.16% to $47.90 per share.
Microsoft price target to $55
Keirstead upgraded Microsoft from Hold to Buy and raised his price target from $44 to $55 per share in a report this week. He thinks the company’s stock is inexpensive and that the near future won’t bring much downside.
Relying On Old-Fashioned Stock Picking, Lee Ainslie Reports His “Strongest Quarter” Ever
Lee Ainslie's Maverick Fund USA enjoyed its "strongest quarter in the fund's history" during the three months to the end of June. According to a copy of the firm's second-quarter letter to investors, which ValueWalk has been able to review, Maverick Fund USA gained 18% in the second quarter. Following this performance, the fund was Read More
The analyst noted that his previous expectations have now played out. He said a little more than a year ago when he downgraded Microsoft to Hold that he had been expecting that Wall Street estimates would come down as the anniversary of the end of support for Windows XP came around In the second half of last year and Microsoft prepared to gobble up Nokia’s devices division.
Microsoft stock “held up”
Even though his predictions did come to pass, however, Keirstead said Microsoft shares didn’t take as much of a hit as he thought they would. Wall Street did trim estimates for the software giant’s earnings, and the analyst said they now reflect the weak sentiment on the PC market. He added that the Street is also finally factoring in “investor enthusiasm” on Office 365 and Azure.
He calls Microsoft shares “relatively cheap” because they are trading at around 15 times the estimated 2016 non-GAAP earnings per share and about 11 to 12 times estimated free cash flow for 2016. He also said he doesn’t see many downside catalysts for Microsoft in the near future.
Microsoft shows off Commercial suite
Microsoft has been showing off plenty of new products recently, including the seven different Windows 10 versions that will be available starting this summer. Last week at its Ignite event, Microsoft focused on its Commercial suite, which is showing promising signs of growth, rising 7% in the March quarter.
After attending the Ignite event, Keirstead said he is “more comfortable” that Microsoft can sustain the recent momentum it has shown, especially through the upcoming improvements to its 2016 server product suite. He also said checks of migration to Office 365 are encouraging and that he thinks Microsoft will partner with Red Hat Linux for Azure support, which of course would be good for both companies’ shares.