NEW YORK (TheStreet) -- Shares of Microsoft Corp. (MSFT) closed higher today, up 0.82% at $43.85, as Pacific Crest provided a positive update today on the software company, maintaining its "outperform" rating and $58 price target.
"After speaking with several customers and industry experts at a Microsoft event this week, we are increasingly confident that Microsoft is well positioned to grow its hybrid cloud business. Hybrid deployments are becoming increasingly prevalent and as much as 50% of enterprise cloud deployments could be hybrid by 2017," Pacific Crest said.
Microsoft Azure appears to be best positioned to take share of spending on hybrid cloud deployments, in Pacific Crest's view. Based on the firm's conversations with customers, enterprise clients are most likely to select cloud vendors that were also the original application vendors. The advantage of continuing this relationship is that the enterprise can retain the existing integration points with the legacy vendors, analysts noted.
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On July 14, Microsoft will end support for Windows Server 2003. Pacific Crest estimates that about 10 million physical servers are still running Server 2003. This is likely to drive an upgrade cycle, particularly because if these instances are not upgraded, they are likely to cause compliance violations, analysts observed.
"We believe many of these customers will be upgrading to Windows Server 2012 R2, which would allow hybrid cloud deployments. Additionally, most of the SMB customers that need to upgrade are likely to transition to a public cloud solution such as Azure," analysts concluded.
Separately, TheStreet Ratings team rates MICROSOFT CORP as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:
"We rate MICROSOFT CORP (MSFT) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels, largely solid financial position with reasonable debt levels by most measures, solid stock price performance and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- MSFT's revenue growth has slightly outpaced the industry average of 7.9%. Since the same quarter one year prior, revenues slightly increased by 8.0%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Despite currently having a low debt-to-equity ratio of 0.31, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Despite the fact that MSFT's debt-to-equity ratio is mixed in its results, the company's quick ratio of 2.24 is high and demonstrates strong liquidity.
- Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- The gross profit margin for MICROSOFT CORP is rather high; currently it is at 67.45%. Regardless of MSFT's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 22.14% trails the industry average.
- You can view the full analysis from the report here: MSFT Ratings Report