Microsoft Corp (MSFT)

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Microsoft Has Plunged This Year. An Analyst Says It’s Time to Buy
By: Barron's | May 13, 2022

Investors are missing the point on Microsoft as growth in the cloud continues to drive strong business performance, Tigress Financial analyst Ivan Feinseth said on Friday as he reiterated his Buy rating on the stock.

Microsoft ’s stock (ticker: MSFT) is down over 22% year to date to $260.84 and Feinseth sees the pullback in price as a major buying opportunity. He kept his $411 stock-price target on Friday.

Feinseth bases his upbeat rating on the belief that large and small enterprises will continue their adoption of Microsoft’s Cloud, Office, and Teams products as digitization accelerates. He also thinks the tech giant will see increasing gaming subscription success and pointed to the fiscal third-quarter results as evidence.

In its recent quarterly earnings report, Microsoft delivered revenue of $49.4 billion, up 18% from a year ago, and above Wall Street consensus of $47.5 billion, according to FactSet data. The results were driven by strength in its Intelligent Cloud segment, which saw a 26% increase in revenue year over year.

More specifically, Azure, its cloud computing service within Intelligent Cloud, experienced a 46% increase in revenue versus last year and the number of over $100 million clients more than doubled year over year. Commercial bookings in the March quarter were better-than-expected and up 28% from a year ago. MSFT continues to see strong cloud adoption and will benefit from the global economic recovery, which is driving an ongoing increase in IT spending, Feinseth said in his note.

Add revenue from Xbox content and services to the mix and there is a perfect storm. Microsoft’s More Personal Computing segment, which includes Windows, Surface, and Xbox, delivered $14.5 billion in revenue, ahead of the company’s guidance range, Wall Street’s estimates, and 32% more than the prior year, “overcoming fears of a slowdown,” Feinseth said.

“MSFT continues to emerge as a dominant force in gaming and prepares to expand into the Metaverse with the recently announced acquisition of industry-leading game developer Activision Blizzard, ” he noted. “We could see an expanded hosted multiplayer integrated platform driving increasing gaming and gaming subscription success.”

The Activision deal—gaming industry’s largest M&A transaction—is likely to face some regulatory hurdles. That said, it is expected to be accretive to Microsoft’s earnings, according to Feinseth, and close by fiscal year 2023, which ends in June 2023.

Almost all analysts tracked by FactSet are on Feinseth’s side. Out of 44 analysts, 43 are bullish and one rates it as Hold.

Microsoft’s stock is up 2.3% to $261.12 on Friday. The average price target on FactSet is $360.71.

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