Microsoft Corporation Stock: Wunderlich Initiates Coverage With Hold Rating
According to a research note published on Tuesday, Wunderlich has initiated coverage on Microsoft Corporation (NASDAQ:MSFT) stock with a Hold rating and a target price of $52. The sell-side firm noted that Microsoft’s CEO, Satya Nadella was promoted to the designation in February last year, and eagerly set about to take Microsoft from a monopolistic PC and hardware company to a new-age mobile business.
Wunderlich believes that the strategic transition should make Microsoft stronger over the long-term with improving revenue growth and margin expansion. Microsoft’s cloud platform Azure and cloud applications such as Office 365 are under-appreciated and will likely be the key pillars to Microsoft’s growth in the future.
The firm noted that the company addresses both enterprise and consumer software across many different segments, categories, and device types including PCs, phones, tablets, and enterprise servers. Third-party industry forecasters expect IT spending to approach $1.25 trillion for data center, device, and enterprise software, with an approximate 3.1% growth rate on a constant currency basis.
Wunderlich analyst, Rob Breza stated, “Microsoft is addressing many secular movements within IT such as mobile and cloud computing; however, its historical Windows franchise will face pressure as the evolution continues, creating volatility and, more important, opportunity.”
The firm also said that the company’s large installed enterprise base gives it an inherent opportunity to consistently up-sell new products. The firm believes that the shift to cloud and Microsoft’s cloud offerings should allow the company to offer more sophisticated products to more users, specifically in the SMB market, which typically could not afford to maintain an on-premise solution that is designed for large enterprise.
Mr. Breza estimates 2015 non-GAAP earnings per share (EPS) of $2.67 on total revenue of $93.54 billion. He expects the company to report 2016 non-GAAP EPS of $2.86, generating total revenue of $96.61 billion during the year.
According to Bloomberg, 23 analysts rate Microsoft stock a Hold, 14 consider it a Hold, and seven advocate a Sell. The consensus 12-month price target on the stock is $49.9, showing upside potential of 9.1% on Monday's closing price.
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