'Living up to the Legend': Microsoft (MSFT) Stock Recovers Earlier Losses as Analysts Boost Price Targets Despite Azure Growth Slowdown

January 26, 2022 6:31 AM EST
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Shares of Microsoft (NASDAQ: MSFT) are up over 3.5% in pre-market Wednesday after the company reported Q2 earnings and revenue numbers that beat analysts’ expectations.

The tech giant reported adjusted earnings per share (EPS) of $2.48, compared to the estimated $2.31, according to Refinitiv.

Revenue came in at $51.73 billion, beating the expected $50.88 billion. This marks a 20% increase in revenue from the year-ago period, compared to a 22% rise in the previous quarter. The company’s net income grew by 21% to $18.77 billion.

Amy Hood, CFO of Microsoft, said the company expects to earn between $48.5 billion and $49.3 billion in revenue in the third quarter, compared to the $48.23 billion Refinitiv estimates.

The company’s Intelligent Cloud unit, which includes the Azure public cloud, GitHub and Windows Server, made $18.33 billion in revenue, compared to the expected $18.3 billion consensus.

Azure and other Microsoft cloud services reported revenue growth of 46%, more than StreetAccount consensus of 45.3%.

Revenue at the More Personal Computing segment, containing Windows, advertising, devices, and gaming, stood at $17.47 billion, 15.5% more than the estimated $16.56 billion.

The Productivity and Business Processes unit which includes Office, Dynamics and LinkedIn reported $15.94 billion in revenue, compared to the $15.86 billion consensus.

Citi analyst Tyler Radke hiked the price target to $386.00 per share from the prior $376.00 on the Buy-rated MSFT stock. Radke says Microsoft’s print has reassured investors “with leading indicators accelerating including commercial bookings strength, and the outlook for faster Azure revenue growth next Q.”

“The megacap continues to deliver impressive double-digit revenue and net income growth (20% y/y, 22% EPS growth) at scale, where we continue to get higher conviction in the durability. We are slightly raising estimates as incremental FX headwinds are offset by stronger organic growth/Azure. We continue to rate MSFT as our top megacap/GAARP pick as we see the company’s double-digit growth formula as distinguished + defensive. We believe MSFT can continue to capture increased consumer/enterprise spend with strong pricing power in core Office/Windows franchises and as its enviable list of enterprise customers accelerate cloud migrations,” Radke wrote in a client note.

BofA analyst Brad Sils maintained a Buy rating and a $365.00 per share price target as results proved demand remains solid. Still, Sils said he is “somewhat disappointed” with Azure growth deceleration.

“Q2 results validate our view that the company is likely to sustain healthy high teens FCF growth from sustained growth in Azure, Office 365 and datacenter scale and pricing power. We raise our estimates to reflect revenue upside. Reiterate buy/top pick and $365 PO(now based on 32x C23e FCF vs 33x prior to reflect peer group multiple compression).”

Microsoft shares closed at $288.49 yesterday.

By Senad Karaahmetovic | [email protected]

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