Microsoft's Q2 EPS gets mixed reviews, prompts one downgrade on Azure worries
Microsoft's (NASDAQ: MSFT) fiscal year 2023 second-quarter earnings after the close are getting mixed reviews on Wall Street Wednesday morning. Several firms cut their price target following the print, several raised their price targets, and at least one firm downgraded the stock.
BMO Capital's Keith Bachman downgraded shares to Market Perform from Outperform and lowered his price target to $265 from $267, citing the ongoing uncertainty on Azure. Until Azure growth stabilizes, the stock will be "range-bound", Bachman said. Azure represents about 31% of the firm's FY24 revenue estimates. Bachman said Azure likely over-earned for eight quarters from the September quarter of 2020 to the June quarter of 2022. He now envisions Azure growth exiting FY24 in the mid-to-high teens versus their current estimate of 20%.
Raymond James analyst Andrew Marok cut his price target for Microsoft to $270 from $280 but maintained an Outperform rating. The analyst cited the weak guidance in the More Personal Computing segment. "We still see a positive dynamic for Microsoft in terms of fundamental positioning, consolidating IT spend, and long-term cloud growth, but this quarter’s guide likely means that the debates around growth trends entering the report will remain outstanding," the analyst said.
Stifel's Brad Reback lowered his price target to $275 from $290 and comments that the results were "not as bad as feared", although he said there is "work to be done." The analyst maintained a Buy rating. "While Azure's +38% Y/Y-CC was modestly-better-than management's 37% Y/Y-CC guide, the 3Q Azure forecast (~26%/~30% Reported/CC) fell short of expectations as usage growth moderated during the quarter," Reback commented. "We believe usage growth has been stable in January, but the print/guide/commentary will not do much to clarify the key debate...Where does Azure's growth rate stabilize? In an effort to effectively reset our model we are now forecasting future Azure growth of mid-to-low 20%."
On the more bullish side, Citi's Tyler Radke reiterated a Buy rating and raised his price target to $282 from $280, on the "better than feared" Q2 and "de-risked" guidance. "The weaker outlook came on elevated cloud optimizations/slowdown in new business consistent with investor concerns," the analyst commented. "Ultimately guidance looks more conservative to us, particularly across Azure, Windows OEM, and opex, likely in an attempt to derisk FY23. Though difficult to call it the last cut (pending macro factors/recession risk), even on lower numbers, MSFT’s consolidated revenue and EPS growth is beginning to accelerate from these levels, which we think can be a differentiator."
DA Davidson's Gil Luria also raised his price target on the Buy-rated stock to $280 from $270. The analyst sees the investment in OpenAI as a source of upside, and possibly a short-term catalyst.
Shares of Microsoft are down 2.6% as of 6:47AM ET.
By StreetInsider.com Staff