According to a research note published on Wednesday, Deutsche Bank has reiterated a Buy rating on Microsoft Corporation (NASDAQ:MSFT) stock with a price target of $55. The sell-side research firm hosted a lunch meeting on Tuesday with approximately 20 investors to exchange insights on Microsoft.
Deutsche Bank noted that the stock has been trending down modestly after hitting a peak of $49 in late April. The firm believes that the downward trend is due to unusual strong move in the stock, following the March quarter results as well as recent weak PC market news. The investors mostly focus on cloud transition, the state of the PC market, and how the stock would react if Microsoft was to acquire Salesforce.com, Inc. (NYSE:CRM).
The bull case focuses on the cloud transition story, with Office 365 and Azure now providing 7% of the revenue mix and growing more than 100%. The operating expense story and the stability of Microsoft’s Server product revenue were mentioned far less in the bull scenario. The bulls also argued that the pending Windows accounting change and associated GAAP earnings per share (EPS) cuts are in the stock already, as are weak PC market trends.
The bearish side of the investors focuses on near-term and secular PC growth concerns with consensus view mixed at best, without any Win 10 lift in the second-half of 2015. The bears also discuss skepticism about the cloud transition, mostly saying that is it a drag on margins or will it cannibalize on-premise workloads. The bears also question about Office 365 growth being offset by the decline in traditional license Office.
Deutsche Bank analyst, Karl Keirstead stated, “We conclude that the weak PC market is largely in the stock (the PC-centric Windows OEM business is now just 12% of MSFT’s rev mix), the cloud transition story is additive and will lift sentiment for some time.” He further added that Microsoft’s valuation multiple will appear more reasonable to the skeptics as EPS growth recovers in fiscal-year 2016 (FY16).
According to Bloomberg, 23 analysts rate Microsoft stock a Buy, 14 recommend it a Hold, and only seven tag a Sell. The consensus 12-month price target on the stock is $49.9 showing an upside potential of 9.6% on the current trading price.
The stock is currently trading down 0.87% at $45.43 as of 1:06 PM EDT. Since the start of the year, the stock experienced a decline of 3.42% with an average daily trading volume of 29.27 million shares.
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