FBR Capital Upgrades Microsoft (MSFT) to Outperform; Citing Cloud Growth Prospects and New CEO Nadella

June 5, 2014 6:22 AM EDT
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FBR Capital upgraded Microsoft (NASDAQ: MSFT) from Market Perform to Outperform with a price target of $49.00 (from $43.00) to reflect the firm's sum-of-the-parts analysis.

Analyst Daniel H. Ives cited: (1) have a high degree of confidence in Satya Nadella's plan for Microsoft's future (e.g., cloud/
mobile focus); (2) are optimistic about its strong cloud offerings (e.g., Office 365/ Azure); and (3) believe Microsoft is taking necessary steps (e.g., free Windows on mobile devices with screens under nine inches) to ensure Windows successfully makes the transition to mobile."

He added, "While the company has clearly missed opportunities to become a major player in the tablet, mobile, and search markets over the years, we believe now with Nadella at the helm, Microsoft is off to a golden start with his improved transparency and strategic focus on the mobile/cloud space. Coupled with a number of key strategic announcements Nadella has made as new CEO (Office on iPad, free Windows on certain mobile devices, Surface Pro 3, partnership with salesforce.com), we also believe Microsoft's disciplined spending leaves it poised for long-awaited growth in free cash flow (we estimate 5% year-over-year growth for FY15), representing a breath of fresh air for investors, in our view. That said, given our checks from the field and recent results (March quarter), we believe Microsoft is experiencing accelerated traction in the cloud with its core cloud Office product (e.g., Office 365) showing good subscriber momentum, while its cloud services platform (e.g., Azure) is also growing rapidly on the heels of strong secular trends (e.g., cloud buildout). In a nutshell, while its mobile strategy (e.g., Surface, Nokia) remains a "prove me" situation, we believe Microsoft’s intertwined focus with the cloud will help breathe new life into this software behemoth over the coming years."

For an analyst ratings summary and ratings history on Microsoft click here. For more ratings news on Microsoft click here.

Shares of Microsoft closed at $40.32 yesterday.

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