TLDR
- Microsoft received an upgrade to “Buy” from D.A. Davidson with a $450 price target
- Stock is down about 10% this year despite outperforming broader market recently
- Analysts view Microsoft as having less consumer exposure than other tech giants
- Expected to post 8.84% earnings growth with Q1 EPS of $3.20
- Currently trading at a forward P/E ratio of 29.09, slightly above industry average
Microsoft Corporation, the software giant behind Windows and Azure cloud services, received a vote of confidence from Wall Street analysts this week. The upgrade comes despite recent market volatility and growing concerns about consumer spending.
D.A. Davidson analyst Gil Luria upgraded Microsoft stock to a “Buy” rating from “Neutral” on Wednesday. The new price target of $450 represents over 17% upside from current levels.
Luria believes Microsoft is “the best positioned” tech company to handle a consumer slowdown. This positioning could make it “a key shelter in the storm” if economic conditions worsen.
According to the analysis, Microsoft has the second-least consumer exposure among major tech companies. Only semiconductor maker Nvidia has less exposure to consumer spending.
This contrasts with companies like Amazon, Alphabet (Google’s parent), Apple, and Meta Platforms (Facebook’s parent). All of these tech giants would likely face greater challenges if consumer spending declines.
Microsoft shares have fallen approximately 10% year-to-date. This drop came after disappointing guidance in late January.
The stock has shown resilience despite downturn
Despite the recent downturn, the stock has shown resilience compared to broader market indices. Microsoft shares gained 0.76% in Wednesday’s trading session, reaching $383.34.
This performance beat the S&P 500’s gain of 0.49% on the same day. It also significantly outperformed the tech-heavy Nasdaq, which rose 1.22%.
Over the past month, Microsoft stock has declined 7.53%. However, this still represents stronger performance than both the broader technology sector (down 12.07%) and the S&P 500 (down 8.15%).
Investors Brace for Key Earnings Report
Investors are closely watching Microsoft’s upcoming earnings report. Analysts expect the company to post earnings of $3.20 per share, representing year-over-year growth of 8.84%.
Revenue is projected to reach $68.37 billion, showing 10.52% growth compared to the same quarter last year. For the full fiscal year, consensus estimates predict earnings of $13.08 per share.
Annual revenue is forecast at $276.15 billion, indicating increases of 10.85% and 12.66%, respectively, from the previous year.
Valuation metrics show Microsoft trading at a forward price-to-earnings (P/E) ratio of 29.09. This represents a slight premium compared to its industry average of 25.74.
The company’s PEG ratio (price/earnings to growth) stands at 2.02, roughly in line with the Computer – Software industry average of 2.05.
The stock holds a Zacks Rank of #3 (Hold)
Microsoft currently holds a Zacks Rank of #3 (Hold). The Computer – Software industry ranks 71st out of 250+ industries, placing it in the top 29% of all sectors tracked.
Capital expenditure has become a key focus for Microsoft and peers as investors question how AI investments will translate to future returns. Recent analyst estimate revisions have been slightly positive, with the consensus EPS estimate moving 0.09% higher over the past month.
Microsoft stock was down slightly in Thursday pre-market trading, falling 0.2%. By comparison, futures for the tech-heavy Nasdaq 100 were down 0.5%.
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