Microsoft (MSFT) Stock Gains on Strong FQ1 Results and Guidance, Analysts Raise Price Targets on Azure and Windows Outperformance

October 27, 2021 5:23 AM EDT
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Price: $336.19 -0.51%

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Microsoft (NASDAQ: MSFT) stock is trading over 2% higher in pre-open Wednesday after the company reported better-than-expected FQ1 results and guidance.

Microsoft reported EPS of $2.71 to crush the analyst estimate of $2.07. Revenue for the quarter came in at $45.3 billion versus the consensus estimate of $43.97 billion.

“Digital technology is a deflationary force in an inflationary economy. Businesses – small and large – can improve productivity and the affordability of their products and services by building tech intensity. The Microsoft Cloud delivers the end-to-end platforms and tools organizations need to navigate this time of transition and change,” said Satya Nadella, chairman and chief executive officer of Microsoft.

The Cloud business revenue soared 31% YoY to $16.96 billion, higher than the $16.51 billion consensus.

On the analyst call, MSFT said it is seeking revenue of between $50.15 billion to $51.05 billion in fiscal second-quarter, higher than the $48.92 billion analyst consensus.

Mizuho analyst Gregg Moskowitz raised the price target to $360.00 per share from the prior $350.00 on the Buy-rated MSFT, citing Azure acceleration, positive guidance, and surprising Windows outperformance.

Higher price target reflects raised FY22E-23E revenue and EPS forecasts.

“MSFT reported a good all-around F1Q, with all three segments delivering healthy upside. Most notably, Azure revenue growth of 50% (and +48% CC) accelerated three points on a constant currency basis, and Windows OEM revenue grew 10% Y/Y despite supply chain constraints. F2Q revenue guidance was also stronger than expected. Looking ahead, we reiterate our view that MSFT's growth opportunities over the medium-term and beyond are greater than many realize, and that MSFT is positioning for materially greater success in the cloud,” Moskowitz said in a client note.

Stifel analyst Brad Reback also reiterated a Buy rating and raised the price target to $380.00 per share from the prior $325.00 after “another strong quarter.” Reback also outlined surprising Windows outperformance

“As expected Commercial-Cloud outperformed, but Windows also exceeded expectations as the Windows 11 release generated healthy ARPU gains. Overall, this broad-based strength appears sustainable as businesses of all sizes continue to embrace the company's growing suite of Infrastructure, Productivity and Security solutions as core foundational pieces of their individual digital transformation strategies. As we have written for sometime, the expanding product set, coupled with growing domain expertise and deeper, more strategic, customer partnerships is enabling MSFT to tap into Tier 1 workloads that were well outside its reach just a few short years ago, taking meaningful amounts of market share from legacy enterprise vendors,” Reback wrote in a client note.

Overall, the analyst continues to see MSFT as well-positioned to deliver beats, as well as grow income and cash flow faster than revenue going forward amid the “ever-growing backlog of digital transformation opportunities.”

Shares of Microsoft closed at $310.11 yesterday.

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