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Oct. 25, 2021, 8:15 a.m. EDT

The PC slowdown shouldn’t hurt Microsoft earnings, and here’s why

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By Jeremy C. Owens

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What analysts are saying

Analysts are in pretty universal agreement about Microsoft’s current position. According to FactSet tracking, 33 out of 36 analysts rate the stock the equivalent of a buy, while the other three rate it as a hold.

“Currently trading at ~27x our CY23 GAAP EPS estimates, Microsoft represents a rare combination of strong secular positioning and reasonable valuation within the software space,” wrote the Morgan Stanley analysts, who rate the shares overweight with a price target of $331.

The once concern seems to be the durability of the current growth trajectory, which is why the Nuance acquisition and increased pricing of Office 365 is seen as key to the stock continuing to rise.

“Comps get progressively tougher throughout FY22, which should be met by Microsoft’s durable growth portfolio of Azure/Security/Teams,” wrote Jeffries analysts, who have an outperform rating and recently raised their price target to $375 from $345. “Key items to watch are elevated expectations (Azure high 40s reported), integration with Nuance and increased security investments.”

In-depth: The tech earnings boom is fizzling out, as Apple and Amazon face the same issues as everyone else

Microsoft has benefitted from the pandemic, as companies have relied on cloud-computing power and software to keep teams connected while working remotely. But Microsoft bull and Wedbush analyst Daniel Ives does not see a return to the office as a sign that the boom will end.

“We believe the Street’s view of moderating cloud growth on the other side of this WFH cycle is contrary to the deal activity Microsoft is seeing in the field,” Ives, with an outperform rating and $375 price target, wrote in a preview of the report. “While we have seen the momentum of this backdrop in the last few years, we believe deal flow looks incrementally strong (Office 365/Azure combo deals in particular) heading into FY22 as we estimate that Microsoft is still only ~35% through penetrating its unparalleled installed base on the cloud transition.”

Stifel analysts, with a buy rating and $325 price target, concurred.

“We continue to believe that the pandemic is forcing organizations to accelerate the pace of their cloud migrations and that Microsoft remains a key beneficiary of this modernization spend, especially around large new deal momentum, as its broad stack enables it to capture Tier 1 workloads previously out of reach,” they wrote.

The average price target on Microsoft stock as of Friday afternoon was $335.47, roughly 8.5% higher than the going rate.

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