Microsoft Corporation (MSFT) Upgraded to Long-term Buy

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Hilliard Lyons upgraded its stock rating for Microsoft Corporation (NASDAQ:MSFT) to long-term Buy with a price target of $52 per share due to the improving operating performance of the company.

Long-term buy justified by Microsoft’s total return potential

In a note to investors, Hilliard Lyons technology analyst, Stephen Turner explained that the long-term Buy rating for Microsoft Corporation (NASDAQ:MSFT) was justified by a two year 20% total return potential based on their $52 price target including dividend. The firm also increased its suitability rating for Microsoft to 1.

According to Turner, “Strong cloud adoption and constructive cost containment have resulted in our upgrade of Microsoft Corporation (NASDAQ:MSFT) to a long-term Buy rating. We believe investors can achieve a potential 20% total return should shares trade at 15x our FY’16 EPS estimate of $3.09, resulting in our $52 price target, while also including dividend income.”

“The increase in shareholder suitability is based on the company’s recent successful acquisition of Nokia devices, large cost cutting and restructuring efforts, as well as continued strong free cash flow generation and a cash balance of $103.1 billion,” according to Turner.

FY15 2Q estimate for Microsoft

For its second quarter fiscal 2015, Turner estimated that Microsoft Corporation (NASDAQ:MSFT) will be able to generate $0.79 in earnings per share on $26.7 billion in revenue. His previous estimate was $0.80 in GAAP earnings per share on $27.6 billion in revenue.

Turner raised his fiscal 2015 GAAP EPS estimate for Microsoft Corporation (NASDAQ:MSFT) from $2.68 to $2.88 per share. He also increased his revenue estimate from $97.2 billion to $97.6 billion.

According to him, the increase in earnings for the full fiscal year reflects a significant reduction in the operating expenses of Microsoft Corporation (NASDAQ:MSFT) following its corporate restructuring after acquiring Nokia Devices. He added that their preliminary fiscal 2016 non-GAAP EPS estimate for the company was $3.09, a 7% growth y/y.

Microsoft posted better than expected earnings results

Turner emphasized that Microsoft Corporation (NASDAQ:MSFT) delivered better than expected earnings results for its first quarter fiscal 2015. The company achieved $0.54 GAAP earnings per share on $23.2 billion revenue, up 25% year-over-year.

According to Turner, the company’s revenue exceeded their $21.9 billion estimate. He noted that Microsoft Corporation (NASDAQ:MSFT) benefitted from strong commercial cloud revenue growth of 128% y/y, improved hardware sales of Xbox One consoles and Surface tablets, strength of Office 365 and the solid growth of Server products.

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