Microsoft (MSFT): Reiterating Buy On Strength Of Cloud Product - UBS
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UBS analyst, Brent Thill, reiterated his Buy rating on shares of Microsoft (NASDAQ: MSFT) as he sees the commercial cloud business (inc. Office 365, Azure and Dynamics) ended FY16 at a >$12.1Bn run rate (up >50% y/y, inc. Azure growing >100% and O365 commercial up ~65% CC).
Growth would have to slow materially (to below 30% CAGR) in order to miss the company's stated goal of a $20Bn run rate by FY18, while LNKD provides some additional cushion (~$4Bn in annual rev). As a result of this transition, the analyst believes MSFT has become increasingly more relevant in the datacenter, w/ Azure one of two horses in a massive cloud infra market, while the applications segment is also showing signs of a 'next act' built around O365 and LNKD. Ultimately, the analyst believes the cloud creates more recurring revenue streams, which lead to greater visibility, and offer investors more consistent results relative to other large cap tech peers.
The price target of $64 is up from $62 based on a slightly higher multiple; 15x EV/FCF Fwd NTM estimates (prior 14.5x).
Shares of Microsoft closed at $58.03 yesterday.
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