Microsoft (MSFT) Price Target Raised to $245 at Morgan Stanley

Javier Frausto

Morgan Stanley analysts reiterated their Overweight rating on shares Microsoft (MSFT) on Wednesday, raising their price target to $245 (from $230) adding that another dividend increase is likely to come.

In years past, Microsoft has announced increases in mid-September. A potential 10%+ increase from $0.51 to $0.56, may be imminent. Combined with “mid-teens” earnings growth, the analysts see MSFT’s total return profile as being at a “durable and attractive level” during these unclear times.

According to the analysts, a 10% dividend increase is justifiable due to the company’s +23% YoY FY20 operating income increase. In years past, the annual dividend increase has been around the high-single digit/low-double digit range. This commitment to an annual dividend increase is likely to become a permanent commitment, given the increase of operating income, a capacity for a larger dividend increase is in the books.

Paired with 10% revenue growth, further margin expansion, and share repurchases, the analysts believe the stock to have a premium return profile “versus the broader market, which is still not fully reflected in the shares.”

Despite uncertain times, Microsoft remains well exposed to secular growth. Their drivers range from gaming (Xbox) to security to cloud (Azure) to the software in Office and Windows, all of which provide recurring revenues. Paired with franchises like LinkedIn, double-digit revenue growth seems almost sure-fire at this point. A combination of this and expanding margins would support a >10% dividend increase.

The balance sheet is marvelous. Almost $140 billion in cash and equivalents, cash isn’t a problem with Microsoft. A potential TikTok purchase would still leave the company liquid, seeing that Microsoft has the strongest balance sheet in the software industry.

The analysts were also sure to point out that with Microsoft shares recently hitting all-time highs, even a 10% dividend increase would only result in a dividend yield of 1%, a number that is historically low in years past.

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Disclosure

At the time of publication, I am long Microsoft. I have positions in Microsoft. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for creating this article (other than from TheStreet) and have no business relationship with any company whose stock is mentioned in this article. 

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Comments (6)
No. 1-3
Nikhil Gunderia
Nikhil Gunderia

Xbox > Playstation

jeehoyun
jeehoyun

superrrr long on Microsoft

JPotts
JPotts

Do you think that the soon to be released new-generation Xbox had an impact on the price target raise?