The Best Is Still To Come From Microsoft

The “best is yet to come” from Microsoft Corporation MSFT, Wunderlich said as part of its upgrading the stock to Buy from Hold after the company’s first quarter revenue and EPS topped the Street on growth in Azure and adoption of Office 365.

“We believe the upcoming quarter to be an inflection point for MSFT as the company will complete the sale of its feature phone business and the acquisition of LinkedIn, signifying the end of the old and the beginning of the new,” analyst Ryan MacDonald wrote in a note.

MacDonald believes the integration of LinkedIn Corp LNKD will boost the value proposition of Azure, Office 365 and Dynamics.

Related Link: Microsoft On The Brink Of Inflection Point In Cloud Services

Looking ahead, the company guided second-quarter revenue to a range of $24.65 billion–$25.45 billion, below consensus at $25.8 billion. This guidance includes a 100bps FX headwind. Commercial unearned revenue is expected to be in the range of $21.05 billion - $21.25 billion.

Meanwhile, the analyst cut his FY17 revenue estimate to $93.893 billion from $94.462 billion, but raised FY17 EPS estimate to $3.06 from $2.94.

Shares of Microsoft currently trade at a P/E of 18.7x his FY17 estimate of $3.06, a discount to the large-cap software group mean of 23.4x. The analyst also raised the price target on the stock by $10 to $70, which assumes shares trade at 22.9x, a discount to the peer group multiple.

“As such, we believe the best is yet to come as we expect revenue growth acceleration and margin expansion based on improving profitability metrics for commercial cloud,” MacDonald added.

At the time of writing, shares of Microsoft rose 4.92 percent to $60.07.

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Posted In: Analyst ColorEarningsLong IdeasNewsGuidanceUpgradesPrice TargetAnalyst RatingsMoversTechTrading IdeasRyan MacDonaldwunderlich securites
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