By Senad Karaahmetovic
Morgan Stanley analysts reiterated an Overweight rating on Microsoft (NASDAQ:MSFT) stock and a $307 per share price target.
Despite recent investors’ concerns about forward numbers still being too high, the analysts continue to see a strong (and durable) demand signal in the commercial businesses, which should help the tech titan to improve top and bottom-line growth in the second half of the next year.
“With strong competitive positioning ahead of large secular growth opportunities, the company looks to sustain current investments to capture market share, win a higher portion of IT budgets as companies look to consolidate vendors, and maintain strategic long-term positioning, rather than cut more aggressively to optimize near-term profitability. We largely agree with the strategy here,” they wrote to clients in a note.
The analysts also stated that commercial business is more durable than investors believe. They highlighted 4 reasons why they remain bullish on Microsoft stock.
- Demand signals remain positive;
- Operating expense should normalize into the back half of FY23;
- Several revenue tailwinds heading into 2HFY23; and
- Valuation remains favorable.
Elaborating further on valuation, the analysts note that Microsoft trades at ~20x CY24 GAAP earnings. This, as well as accelerating EPS growth, should bring investors back to Microsoft shares, they concluded.