'Teflon Like' Microsoft Sees Price Targets Cut By Analysts, Could Be 'Rip The Band-Aid Off Moment'

Technology giant Microsoft Corporation MSFT reported first quarter revenue and earnings per share that came in ahead of Street estimates. Here’s why analysts are adjusting price targets down after the first quarter report.

The Microsoft Analysts

• Wedbush analyst Daniel Ives has an Outperform ratting and lowers the price target from $320 to $290.
• Morgan Stanley analyst Keith Weiss has an Overweight rating and lowers the price target from $325 to $307.
• Raymond James analyst Andrew Marok has an Outperform rating and lowers the price target from $300 to $280.
• RBC Capital analyst Rishi Jaluria has an Outperform rating and lowers the price target from $380 to $310.
• Bank of America analyst Brad Sills has a Buy rating and lowers the price target from $345 to $300.

Related Link: How To Trade Microsoft Stock Before And After Q1 Earnings 

The Analyst Takeaways: Ives said Microsoft provided guidance that was weaker than expected along with a call for Azure growth to be slower than expected.

“Microsoft has been Teflon-like the past few quarters as the Street held its breath every quarter to see if there were cracks in the Redmond armor,” Ives said.

Ives said one of the biggest surprises in the company’s earnings report was slower growth for the core Azure/Office 365 division. The analyst questions if the company is being overly cautious or if this could be a sign of what’s to come.

“The Street needs to discern is this just the first shoe to drop for MSFT or a rip the band-aid off moment and the stock moves higher from here.”

Weiss said the impact of the overall economy weighed heavier on Microsoft than expected. The analyst sees and attractive risk/reward scenario playing out.

“While heavier cyclical weights brings down our FY23 EPS estimates, we remain firmly convicted in the longer-term secular growth story at Microsoft, which we forecast drives a high-teens total-return profile over the next five year, framing an attractive risk/reward,” Weiss said.

Marok said Microsoft reported a “solid” first quarter but the guidance for the second quarter was below expectations.

“While the implications for Azure growth targets disappoint slightly, growth remains robust, and Microsoft is positioned well to benefit from shifts to cloud from enterprises focused on cost savings,” Marok said.

The analyst noted that LinkedIn and the gaming segment were strong performers in the first quarter.

Jaluria shares a similar sentiment of other analysts saying the first quarter was “decent” but calls guidance “rough.”

The analyst questions if all software related stocks could be at risk based off of Microsoft’s comments and guidance.

“Consumer outlook deteriorates. We view the consumer deterioration embedded in Q2 guidance as more dramatic than expected, with MPC revenue guided down double-digits year-over-year,” Jaluria said.

The analyst said several items could be near-term headwinds and are not unique to Microsoft.

Sills said the issues with Azure for Microsoft could be temporary with “mounting macro pressure.”

“Softening Azure expansion workloads and slowing digital ad trends later in Q1 suggest that Microsoft is not immune to the macro,” Sills said.

The analyst said the macro issues could pause new workloads for customers of Microsoft.

MSFT Price Action: Microsoft shares are down 6% to $235.56 on Wednesday versus a 52-week range of $219.36 to $349.67.

See More Microsoft Analyst Ratings here.