Microsoft's Q1 Print Reinforces Bullish Sell-Side Views

Microsoft Corporation MSFT reported first-quarter results Wednesday afternoon that included an EPS beat; here's how some of the Street analysts covering the tech giant reacted.

The Analysts

• Wells Fargo's Philip Winslow maintains an Outperform rating on Microsoft's stock with an unchanged $130 price target.
• Nomura's Christopher Eberle maintains at Buy; price target lowered from $118 to $115.
• Bank of America Merrill Lynch's Kash Rangan maintains at Buy; price target lifted from $136 to $140.
• Morgan Stanley's Keith Weiss maintains at Overweight; unchanged $130 price target.
• Wedbush's Daniel Ives maintains at Outperform; unchanged $140 price target.
• Oppenheimer's Timothy Horan maintains at Outperform; unchanged $127 price target.
• Canaccord Genuity's Richard Davis maintains at Buy; unchanged $120 price target.
• KeyBanc Capital Markets' Brent Bracelin maintains at Overweight; price target lifted from $123 to $125.

Wells Fargo: The Numbers

Microsoft earned $1.14 per share in the fiscal first quarter on revenue of $29.084 billion versus Wells Fargo's estimate of 96 cents per share and $27.864 billion, Winslow said in a note. Intelligent cloud revenue rose 23.8 percent from a year ago to $8.567 billion against Wells Fargo's expectations of $8.242 billion. 

A gross margin of 65.9 percent beat Wells Fargo's estimate of 65.5 percent, and Microsoft's operating margin of 34.2 percent also exceeded the research firm's estimate of $32.3 billion.

Nomura: Beat Across The Board

Microsoft "handily" beat estimates across all three of its operating segments, although management's fiscal second-quarter guidance at the midpoint of all segments implies just 0.3-percent upside, Eberle said in a note. Yet the company could be setting itself up to report another earnings beat, he said. 

BofA: Strongest In A Decade

Microsoft's fiscal Q1 represents the strongest topline growth the company has shown in more than 10 years, Rangan said in a note. The "phenomenal" growth solidifies the company's success in the cloud segment and expands its total addressable market.

Microsoft's topline growth also implies it is among the fastest-growing mega-caps, and the stock's valuation of calendar 2019 estimated P/E of 21 times and 23 times EV/FCF looks "reasonable," the analyst said. 

Morgan Stanley: Paving The Way To $1 Trillion

The bullish case for Microsoft's stock to hit the $1-trillion mark is based on expectations for continued momentum in the cloud business, Weiss said in a note.

Redmond's earnings report implies continued momentum in the cloud, highlighted by the following, the analyst said:

Commercial bookings growth of 16 percent year-over-year despite flat growth in the expiry base.

Commercial cloud revenue growth of 46 percent confirms a strong position in the segment.

Server products and cloud services accelerated to 28-percent growth.

Wedbush: No 'Soft Spots'

Microsoft beat expectations across nearly every metric with zero "soft spots," while Azure and Office 365 remain the "high-octane fuel in the engine," Ives said in a note. The company remains in the early stages of the ongoing secular cloud shift in the cloud, he said. 

Wedbush expects Microsoft will show a double-digit growth rate for the full fiscal year along with margin expansion.

Related Link: Why Microsoft Could Be Next To Join The $1-Trillion Market Cap Club

Oppenheimer: 'Knockout' Quarter

Microsoft's "knockout" quarter was highlighted by Azure selling more premium services to clients, while the 365 business benefited from customers upgrading to more expensive offerings, Horan said in a note. As a result, the cloud business saw improving margins, which implies it will continue to move higher as the segment scales even more, he said. 

Microsoft continues to succeed in building an "intelligent hybrid cloud/edge platform" across all of its business lines and comes at a time when the overall enterprise IT market remains strong, the analyst said. 

Canaccord: Supportive Valuation

Recent market volatility has pushed down many stocks, including Microsoft, whose shares peaked at $116.18 but have since gravitated toward the $100 mark, Davis said. The stock is now valued close to 1x EV/FCF/G, which is "typically a very good" entry point for Microsoft, which just reported the best start to a fiscal year since at least the 2000 bubble, the analyst said. 

KeyBanc: Longer-Term Story

Microsoft's earnings report marks the seventh consecutive quarter of revenue growth, and there is reason to believe the momentum can continue, Bracelin said in a note. The company's multiyear model transformation and focus on the cloud and internet segments could result in the group growing its revenue from $18.5 billion in calendar 2016 to $70 billion by 2020, he said. 

Price Action

Microsoft shares were up 5.43 percent at $107.88 at the time of publication Thursday. 

Related Link: Buy Microsoft For 'Defensive Positioning', Macquarie Says In Upgrade