“Cloud growth has been more resilient than we expected despite enterprises hit hard by the pandemic, positive for MSFT's revenue growth,” Horan wrote in a commentary. “Given industries accelerating their digitization strategies and less political uncertainty, we think now is a good entry point.”
Microsoft shares recently traded at $222.10, up 2.7%, and have climbed 41% year to date. Horan has a $260 price target on the stock.
“MSFT delivered a strong [2021 fiscal Q1 ended Sept. 30] from Teams and strong cloud growth,” he wrote. “There was a brief Covid-19 impact, but enterprises are racing to digitize.” In addition, “churn has not materialized and may not, given potential stimulus and a vaccine,” Horan wrote.
“Windows/server went from tailwinds to headwinds, but we saw this in [Q121] and the Street is aware. Teams is a unique service and should dominate enterprise applications/collaboration for a generation,” Horan wrote. He added that he expects Microsoft “to pursue a freemium bundled model that will reach 1 billion-plus users.”
As for the elections, “a Biden Presidency should improve relations with China, where MSFT has significant exposure,” he wrote. “A Republican majority Senate should prevent higher corporate taxes, and we expect Treasury yields to stay low, making MSFT's 3% free-cash-flow yield attractive.”
Meanwhile, Microsoft is slated to release two new game consoles on Tuesday, Bloomberg reports. The Xbox Series X will cost $500, while the smaller, less-powerful Xbox Series S will sell for $300.