Why Microsoft's Risk/Reward Is Highly Favorable

Software giant Microsoft Corporation MSFT received a bullish endorsement from an analyst at Rosenblatt Securities.

The Microsoft Analyst: Analyst John McPeake initiated coverage of Microsoft shares with a Buy rating and $301 price target, suggesting 26% upside potential.

The Microsoft Thesis: Microsoft is the most important software company on the planet, with more than a billion devices and users, the largest developer ecosystem and 74% of revenues from recurring sources, analyst McPeake said in a note.

Additionally, the company has 1.2 billion identities in its Azure Active Directory and a ten-fold increase in daily active Teams users in the just past year to 145 million, the analyst said. LinkedIn has more than 756 million members and XBox has over 100 million monthly active users, he added.

In cloud computing, the company has moved into second place and is gaining share, the analyst noted.

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"We think Microsoft should be able to grow the top line in the mid-teens while expanding operating margins moderately over the next five years, driving annual EPS and free cash flow growth in the mid-teens at scale," McPeake wrote in the note.

Looking out to three and five years, Rosenblatt is of the view the stock can show upside of 35% and 50% respectively. Microsoft's risk/reward is highly favorable, he added.

MSFT Price Action: At last check Thursday afternoon, Microsoft shares were rising 1.69% to $243.03.

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(Photo: Coolcaesar via Wiki Commons)