The firm said it started coverage on the tech giant as it believes Microsoft's strategic transition from a "monopolistic" Windows company to a new age "mobile cloud first world" will make it stronger and improve both revenue growth and margins over the long term.
"In our opinion, Microsoft's cloud platform, Azure, and cloud applications such as office 365 are under appreciated and will likely be key pillars to Microsoft growth going forward," Wunderlich Securities said in an analyst note.
The firm set a $52 price target on Microsoft stock.
"Microsoft is addressing many secular movements within IT such as mobile and cloud computing; however, its historical Windows franchise will face pressure as the evolution continues, creating volatility and, more important, opportunity," the note continued.
Shares of Microsoft are down by 0.09% to $45.69 in late afternoon trading on Tuesday.
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 its strengths outweigh the fact that the company shows weak operating cash flow."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 5.0%. Since the same quarter one year prior, revenues slightly increased by 6.5%. 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 0.35, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 2.65 is very high and demonstrates very strong liquidity.
- Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite 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 currently very high, coming in at 74.02%. 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, MSFT's net profit margin of 22.94% compares favorably to the industry average.
- You can view the full analysis from the report here: MSFT Ratings Report