Microsoft (MSFT) - Get Report shares were higher after Stifel analysts affirmed a buy rating and raised their price target on the software giant 11% to $245 from $220, a week ahead of the company's scheduled earnings report.
The Redmond, Wash., company should benefit from faster digital transformation due to the coronavirus pandemic as well as a rebounding world economy, leading to a fiscal-first-quarter earnings beat next week.
"We expect the strong results to set the stage for a solid third-quarter-earnings season for the broader software group, as our checks point towards a steady improvement around customer engagement and buying patterns over the course of the quarter," said analyst Brad Reback.
The firm also expects a "solid December guide" from Microsoft due to Office365 gains, market-share expansion for its cloud-computing arm, Azure, as well as the upcoming release of its new Xbox videogame console.
Stifel estimates that Microsoft earned $1.53 a share on revenue of $35.57 billion. versus the consensus estimates, derived from a FactSet survey of analysts, of $1.54 a share on revenue of $35.76 billion.
Cloud revenue is estimated to have climbed 29% from a year earlier to $14.7 billion, with cloud gross margin expected to remain in the upper 60%s.
Cloud gross margin could vary quarter to quarter due to market conditions, Stifel said.
"Microsoft has refocused the company around Azure and Office 365, which we view as several large multiyear secular growth engines that should help drive mid-to-high single-digit productivity and business-process growth and low-double-digit intelligent-cloud growth in coming years," Reback said.
Microsoft shares at last check edged up 0.3% to $214.92. Reback's new $245 price target indicates 14% potential upside from the stock's Monday close at $214.22.