Earnings season is upon us once again and after the market closes next Tuesday (October 25), Microsoft (MSFT) will deliver its fiscal year 2023 first-quarter results (1QFY23).
Against a backdrop of moderating IT budget growth expectations, an adverse FX environment and a weak PC market, Morgan Stanley analyst Keith Weiss says it’s hardly surprising investors are worried about the broader impact these elements could have on Microsoft’s results and guidance.
“That said,” the 5-star analyst went on to say, “strong feedback on the commercial businesses from our channel conversations and another set of robust Microsoft specific results from our most recent CIO survey bolster our confidence in Microsoft’s resilience across key secular growth areas, as well as, positioning in defensive categories, both supporting demand for Microsoft solutions.”
Weiss thinks investors will be happy to see the tech giant’s cloud service Azure attaining 43% cc growth in the quarter and a guide of high 30%’s to low 40%’s. Despite the slowdown in overall IT spending, according to Weiss’s probing, even in the current macro environment, migration of workloads onto Azure has been “fairly durable.” Additionally, the fact cloud computing and the digital transformation remain some of the “top priorities” for CIOs, this secular tailwind should make Microsoft “resilient” to the softening IT spending environment.
Elsewhere, with both Gartner and IDC’s forecasts suggesting a further decline in PC shipments, the Windows OEM business is likely to face headwinds in FY23. Likewise, the strong dollar spells bad news on the FX front.
And while on the last earnings call, CFO Amy Hood indicated the company still expects “double-digit revenue and operating income growth in both constant currency and U.S. dollars,” Weiss thinks that considering all the current issues, sustaining double digit reported growth “appears difficult.”
Accordingly, the analyst’s new model now calls for 8.1% reported revenue growth (or 12.7% cc) and operating income growth of 7.8% (or 15.6% cc).
Nevertheless, despite lowering near-term expectations, with a “longer-term teens total return profile and an attractive valuation,” Weiss still considers MSFT one of his “top ideas.”
As such, Weiss sticks with an Overweight (i.e., Buy) rating although the price target is lowered from $354 to $325. The implication for investors? Upside of ~38% from current levels. (To watch Weiss’s track record, click here)
Wall Street remains firmly in Microsoft’s corner; 3 Holds aside, all 26 other recent reviews are positive, making the consensus view here a Strong Buy; going by the $320.73 average target, the shares will appreciate by 35% over the coming months. (See Microsoft stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
