Microsoft Shares Hit Record High on Robust Q2 Profit; Target Price $285 in Best Case

The global technology giant Microsoft’s shares hit a record high on Tuesday after the company reported better-than-expected earnings in the fiscal second quarter as the COVID-19 pandemic boosted demand for cloud computing and gaming consoles.

The world’s largest software maker’s revenue increased 17% to $43.1 billion, beating the Wall Street consensus estimate of $40.18 billion. Diluted earnings per share came in at $2.03 in the quarter ended December 31, 2020, which represents year-over-year growth of about 34.4% from the same quarter last year when the company reported $1.51 per share.

The software giant’s net income surged 33% to $15.5 billion and operating income jumped 29% t was $17.9 billion.

Following this upbeat result, Microsoft shares hit an all-time high, rising about 4% to $240.92 in extended trading on Tuesday. However, the stock surged over 40% in 2020.

“Microsoft is benefiting from a second wave of digital transformation as well as strength in gaming, which helped the company once again drive material upside compared with its revenue and EPS outlook for the quarter. Guidance for the third quarter was nicely above consensus as well. Azure remains strong, while consumer-related revenue was once again ahead of our expectations as the global lockdowns continued this quarter,” said Dan Romanoff, equity analyst at Morningstar.

“Importantly, commercial bookings and RPO, two forward-looking metrics, both continue to outpace revenue growth. We remain impressed with Microsoft’s ability to drive revenue and margins at this scale and we believe there is more to come on both fronts. Results continue to underscore our thesis, which centers on customer adoption of hybrid cloud environments with Azure. Microsoft continues to use its dominant position of on-premises architecture to allow customers to move to the cloud easily and at their own pace, which we believe will continue over the next five years. Quarterly strength along with upside to guidance and a variety of minor model tweaks drive our fair value estimate to $263 from $235 per share. We still see loosely 10% upside to this high-quality wide-moat name,” Romanoff added.

Microsoft Stock Price Forecast

Twenty-three analysts who offered stock ratings for Microsoft in the last three months forecast the average price in 12 months at $253.30 with a high forecast of $285.00 and a low forecast of $235.00.

The average price target represents a 9.03% increase from the last price of $232.33. All those 23 analysts rated “Buy”, according to Tipranks.

Morgan Stanley gave a base target price of $260 with a high of $330 under a bull scenario and $165 under the worst-case scenario. The firm currently has an “Overweight” rating on the technology giant’s stock.

Several other analysts have also recently commented on the stock. Barclays raised the target price to $269 from $250. Wedbush upped the price objective to $270 from $260. Evercore ISI increased the target price to $260 from $250. Credit Suisse Group set a $235.00 price target. The brokerage currently has a buy rating on the software giant’s stock.

In addition, Bank of America reaffirmed a buy rating and issued a $256.00 target price. UBS Group set a $243.00 target price and gave the stock a buy rating. Pritchard Capital upgraded Microsoft from a neutral rating to a buy rating and increased their price target to $272 from $229.

Analyst Comments

“Strong positioning for public cloud adoption, large distribution channels and installed customer base, and improving margins support a path well beyond $1 trillion market cap. Durable double-digit NT rev growth is supported by Azure (winning in public cloud), data center (share gains and positive pricing trends), O365 (base growth and ARPU uplift) and LinkedIn. GM % improvement, continued opex discipline and strong capital return lead to durable teens total return profile,” said Keith Weiss, equity analyst at Morgan Stanley.

“At 26x CY22e GAAP EPS, Microsoft (MSFT) trades at a premium to the S&P, warranted due to MSFT’s premium return profile. Multiple expansion will likely come from gaining comfort in the durability of commercial business gross profit dollars.”

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