Tuesday, June 20, 2017
MORGAN STANLEY: Microsoft shares could jump 46% in the next year
Microsoft shares could be set for a huge bump, according to Keith Weiss, an analyst at Morgan Stanley.
In a note to clients on Monday, Weiss pointed to rising earnings and increased success of the company's cloud services as possible drivers of big growth. Weiss raised his price target for Microsoft from $72.00 to $80.00 but said it could go as high as $102, a 46% increase from its current price.
Weiss laid out three main reasons he thinks Microsoft's stock price could go up dramatically this year: cloud services, consumer-facing technologies, and the company's financials.
Microsoft is expanding its market share in cloud services, which could increase earnings, according to Weiss. More companies are adopting Azure, Microsoft's cloud computing platform, and the company is increasing monetization of its online Office 365 software and machine learning offerings. The increased cloud market share could eventually total $110 billion for Microsoft, Weiss said.
New consumer-focused technologies could also help drive growth at Microsoft. The company recently announced a new Xbox console and Surface laptop. The new laptop brings the company's Windows 10 S operating system to the market, which is designed to go head-to-head with Google's Chrome OS platform in the education market.
Weiss thinks the non-cloud parts of Microsoft's business should be worth more than the market is currently valuing them. Investors are currently pricing the non-cloud assets at eight times free cash flow, while Weiss thinks it should be closer to 12 times. If he's right, that would add about $115 billion in value for Microsoft.
Finally, Weiss said Microsoft's financials alone should justify a higher share price.
"Microsoft's current trading premium of 16% to the S&P 500 is in line with its premium over the last two years; however, its current total return profile (CY16 to CY18 EPS CAGR plus current dividend yield) is at a ~50% premium," Weiss wrote.
If Weiss is right, Microsoft could be one of the fastest growing stocks in the tech sector. The company is up 12.72% this year. It currently trades at $70.54.
Get the latest Microsoft stock price here.