Microsoft Remains a Solid Investment, Says 5-Star Analyst

·3 min read

With Microsoft (MSFT) stock up over 30% year-to-date, expectations were high coming into the tech giant's fiscal first-quarter earnings. While the tech giant beat on the top and bottom lines, the second-quarter guidance was soft. As a result, MSFT shares fell 5% on the headline, but therein lies the opportunity.

Microsoft made the most from the secular shift to cloud-based services and the change to work-from home environments, blowing the estimates out of the water in its FY1Q21 results.

Total FQ1 revenue grew by 12.4% to $37.2 billion beating the Street’s call by $1.42 billion. EPS of $1.82 (a 32% year-over-year increase) beat the forecasts by $0.28.

Segment wise, Intelligent Cloud revenue came in at $13.0 billion, exhibiting a year-over-year increase of 20% and ahead of the Street estimate for $12.7 billion whilst beating the company’s guidance of $12.55 billion to $12.8 billion. Azure revenue increased by 48% year-over-year, slightly above the 47% uptick in the previous quarter.

However, putting a dampener on the proceedings, Microsoft expects FQ2 revenue of $39.5 billion to $40.4 billion, the mid-range below the consensus estimate of $40.43 billion as management expects a slash to Windows licensing revenue due to soft business demand.

Wedbush analyst Daniel Ives anticipated the “uncertain environment” to impact guidance and therefore, expected “a wider range than usual.” Nevertheless, the 5-star analyst argues the strong showing is in “stark contrast to the earnings debacle we saw from mature software stalwart SAP earlier this week.”

Ives believes the performance “highlights the clear winners and losers in this cloud shift with MSFT leading the way,” and further noted, “For Redmond, this cloud shift and WFH dynamic looks here to stay and the company stands to be a major beneficiary of this trend on its flagship Azure/Office 365 franchise over the coming years. With 33% of workloads in the cloud today poised to hit 55% by 2022, we believe this WFH shift could clearly accelerate the cloud trend by roughly a year as more CIOs are now being forced to face the new normal/ reality for their respective organizations looking ahead.”

To this end, Ives sticks to an Outperform (i.e. Buy) rating along with a $260 price target. The implication for investors? Upside of 27%. (To watch Ives’ track record, click here)

Microsoft has almost unanimous support amongst Ives’ colleagues. 1 Hold rating is dwarfed by 18 Buys - all resulting in a Strong Buy consensus rating. With a $248.26 average price target, the analysts expect shares to rise by 21% over the coming months. (See Microsoft stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.