Microsoft (MSFT) Seen as Long-Term Winner in Cloud; Raymond James Upgrades Stock to Strong Buy

(Updated - November 30, 2015 8:44 AM EST)

Raymond James upgraded Microsoft (NASDAQ: MSFT) from Market Perform to Strong Buy with a price target of $62. Analyst Michael Turits sees Azure as one of the "hyperscale elite" and he thinks Microsoft will be a long term winner in cloud.

Turits explained, "While only recently Microsoft looked like the legacy PC software vendor that had “missed mobile,” today we see it as one of the few tech companies with the scale and product scope to become a truly hybrid vendor integrating its cloud Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS), and Software-as-a-Service (SaaS) offerings with a vast installed base of on-premise server and client software."

"In IaaS, we view Azure as among the select few hyperscale and therefore low-cost competitors to Amazon Web Services and Google. Microsoft PaaS includes the SQL Server/Azure SQL database, Microsoft on-premise and Azure application development, and BI/Analytics. In the midst of a transition to cloud (Office 365), Office appears to be on a path to growth and could anchor an expanding consumer and commercial SaaS business. And while Windows remains vulnerable to PC trends absent mobile traction, we estimate the most exposed portion, consumer Windows, at less than 5% of revenue this year," continued the analyst.

Turits added, "With Microsoft several years into the transition to cloud (17% of revenue in FY16E) we forecast a 6% revenue CAGR FY16-FY18E, including 6% Productivity and Business Processes (Office/Dynamics), 9% Intelligent Cloud (Azure/Server), and 3% More Personal Computing (Windows -5%, non-Windows +6%), although off lowered forecasts for FY16. With opex controls offsetting 3 points of gross margin decline through FY18E on the shift to cloud, we forecast flat operating margins and therefore 6% EBIT growth as well, with long-term EPS growth boosted to at least 8% after expected share buy backs, about in line with the S&P’s historical average growth 1960-2014."

SI NOTE: This report was tagged as 'Hot Upgrade' at StreetInsider Premium given the actionability of the call. StreetInsider Premium members can see more under this category and be alerted to new posts under this category here: http://www.streetinsider.com/Hot+Upgrades

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 $53.93 yesterday.

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