Deutsche Bank: Microsoft Now A 'Buy' On Few Downside Catalysts

In a report published Wednesday, Deutsche Bank analysts upgraded the rating on Microsoft Corporation MSFT from Hold to Buy, while raising the price target from $44 to $55, following the company's Ignite event held last week. The event focused on the Commercial suite, which generated 7 percent c/c growth in the March quarter. This represents about 60 percent of Microsoft's revenue mix and about 80 percent of the company's operating income. In the report Deutsche Bank noted, "We came away incrementally more comfortable that this momentum can be sustained, given pending feature improvements to MSFT's 2016 suite of Server products, bullish checks on the Office 365 migration, a greater appreciation of the strategic value and growth of Azure and a belief that a MSFT-RHT [Red Hat Inc RHT] partnership to offer Red Hat Linux support on Azure is inevitable (good for both stocks)." Microsoft is expected to share its Win 10 licensing and pricing plans with partners over the upcoming weeks. The company has guided to flat FY16 opex, as compared the analysts' expectation of 3 percent opex growth. The adjusted GAAP EPS estimate for FY16 has been raised from $2.65 to $2.94. The GAAP EPS estimate for FY16 has been raised by $0.68 to $2.26. The weak PC market sentiment is already reflected in Microsoft's stock and "investor enthusiasm about Azure and Office 365 is just starting to kick in," the analysts added.