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'No Need to Fear... Microsoft is Here': Microsoft Stock Gains on Strong Results and Guidance, Analysts Bullish

Apr 27, 2022 06:18
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Shares of Microsoft (NASDAQ:MSFT) are up more than 5% in premarket trading Wednesday after the company reported better-than-expected Q3 EPS and revenue.

The tech giant reported Q3 EPS of $2.22, up from $2.03 in the year-ago quarter and above analyst estimates of $2.19 per share. Revenue came in at $49.36 billion, up 18% YoY and topping the consensus estimates of $49.04 billion.

Productivity and Business Processes segment generated $15.79 billion in revenue, up 17% YoY and just above the estimated $15.78 billion. Intelligent Cloud segment revenue stood at $19.05 billion, up 26% YoY, and compared to the consensus projection of $18.9 billion.

Revenue at More Personal Computing totaled $14.52 billion in the period, up 11%, topping the analyst expectations of $14.33 billion. Commercial Cloud revenue stood at $23.4 billion, compared to the expected $23.03 billion.

For the following fiscal year, Microsoft said it expects double-digit revenue growth in anticipation of strong demand for cloud computing services.

“If there is any macro headwind, where you have more value for less price means you win. In our case, when it comes to our commercial cloud offerings, we have significant advantages on that across the stack,” said CEO Satya Ndaella.

The company expects Q4 revenue for its Intelligent Cloud to be in the range of $21.1 billion to $21.35 billion, ahead of consensus estimates of $20.933 billion.

Stifel analyst Brad Reback lowered the price target to $350.00 per share from $380.00 on Microsoft to reflect multiple contractions. The analyst remains very positive on Microsoft after solid results and better-than-expected guidance.

“Net/net, given the ever-growing backlog of digital transformation opportunities, we believe Microsoft is in the early innings of their Tier 1 workload penetration, and believe the company is well positioned to post sustained double-digit top-line growth and when combined with operational discipline, should enable gross-profit dollars to grow faster than opex spend, leading to healthy, mid-teens, sustained FCF gains,” Reback said in a client note.

Citi analyst Tyler Radke raised the price target to $364.00 per share from the prior $355.00 to reflect “underlying strength” in the business. Radke says MSFT delivered “a resounding Q3 with a clean beat,” coupled with “a reassuring outlook.”

“While the revenue upside was impressive especially with a 3-pt Azure acceleration, the commercial bookings metric was a standout, delivering the fastest growth(34%) seen to date on a 2-yrstack/adjusted view. This strength in a key leading indicator and reassuring/confident guidance should challenge the prevailing narrative that software fundamentals are weakening across the board. We reiterate MSFT as our top megacap pick given the combination of multiple ongoing product cycles, pricing power and a large install base which should drive sustainable DD growth and operating income, backed by strong capital returns. We see positive readthrus for most of the software sector and particularly cloud usage models (ESTC, SNOW, MDB, CFLT, DDOG),” Radke wrote in a memo.

By Senad Karaahmetovic

'No Need to Fear... Microsoft is Here': Microsoft Stock Gains on Strong Results and Guidance, Analysts Bullish
 

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