Evercore ISI raised its target price on Microsoft (MSFT) stock from $150 to $160. Wall Street analysts’ mean target price on Microsoft stock is $155, which implies an 11% gain from the current level.
Microsoft stock outperformed its peers
Microsoft stock has been rising amid more economic pressure. Since August 1, Microsoft stock has increased 2.1%—the highest among its peers. The stock has risen 36.9% YTD (year-to-date) and outperformed its peers. Amazon (AMZN), Apple (AAPL), and Alphabet (GOOGL) (GOOG) have risen 22.1%, 35.2%, and 15.4% YTD.
Currently, most tech stocks are under the US government’s radar. However, Microsoft saved itself from the heat. Notably, the company thinks that the US isn’t treating Huawei fairly. The Department of Commerce added Huawei to its export blacklist. The mounting trade tension between the US and China has been impacting the equity market and stocks. The trade war also triggered recession fears.
Most analysts like Microsoft stock
Analysts are positive on Microsoft stock. In September, 33 of the 36 analysts rated Microsoft as a “buy” or “strong buy.”
Analysts expect Microsoft’s earnings to grow in the next two years. They estimate a 10% rise in the company’s EPS in 2019 and another 13% increase in 2020. In the recent quarter, Microsoft crushed analysts’ on revenue and earnings estimates. The company’s adjusted EPS of $1.37 beat analysts’ estimate by about 13% in the fourth quarter.
Microsoft has a diversified earnings model. The company’s three business segments contribute almost equivalently to its total revenues. Microsoft’s Productivity and Business Processes, Intelligent Cloud, and More Personal Computing segments added 33%, 34%, and 33% to its total revenues in the fourth quarter. The company’s total revenues rose 12% YoY to $33.7 billion in the quarter. Microsoft’s revenues also beat analysts estimate by about 3%.
In the fourth quarter, Microsoft’s revenues rose across its segments. However, the Intelligent Cloud segment saw the highest rise. The Intelligent Cloud segment’s revenues rose 19% YoY due to a 64% rise in Azure revenues. Notably, the Intelligent Cloud segment contributed 36% to Microsoft’s operating income. According to Microsoft, more than 95% of the Fortune 500 companies use Azure. Azure also led to a rise in Microsoft’s Commercial Cloud gross margin. Analysts expect Azure to be the earnings growth driver for Microsoft stock.
Azure’s unique offerings
Azure is a strong cloud computing platform that provides customers with unlimited data and analytics abilities across datasets. The company provides cloud computing but also has features like management, identity, security, and infrastructure. Microsoft is also bringing AI tools and services to customers with Azure Cognitive Services.
In the latest earnings call, Microsoft’s CEO, Satya Nadella, said, “Our differentiated approach – from developer tools and infrastructure to data and analytics to AI – is driving growth. The world’s leading companies trust Azure for their mission-critical workloads.”
Analysts expect Apple’s earnings to fall 2% in 2019 and rise 10% in 2020. They expect Amazon’s earnings to increase 17% in 2019 and 41% in 2020. Also, analysts expect Alphabet’s earnings to increase 12% in 2019 and 14% in 2020.
To learn more about the tech sector, read Three Tech Stocks to Buy for 2020.