The stock is up 53% for the year in 2019, even as its multiple has fallen from where it was a few years ago. Microsoft is one of TheStreet’s top 25 stocks of the year, which considers not only stock price performance, but also management election off strategy and the ability to beat estimates and even raise expectations.
Earnings growth has been powered by Microsoft’s sturdy number two position against Amazon in cloud market share. Microsoft has also consistently beaten earnings estimates, leading to analyst earnings revisions upwards for the next year.
So what’s in store for 2020?
The average analyst 12 month price target on the stock is $163, representing just 5% upside, in a broader market that strategists largely think can move up about 5% in the next year.
But that price target potentially has upside. First off, analysts polled by FactSet are looking for earnings growth for 2020 and 2021 of 15%, respectively.
Secondly, the cloud market is still in its early stages. The cloud opportunity is a “massive game-changer opportunity,” said Wedbush Securities analyst Dan Ives. “There are a lot of areas for Microsoft to tap into.” Currently, 32% of business and government workloads have adopted the cloud and analysts expect that percentage to move much higher.
Regardless of market share between Microsoft and Amazon, the cloud is still booming. For 2020 Microsoft share gains specifically, “I still think it’s cloud" Ives said.
Some analysts, including Ives, see Microsoft’s long-term opportunity creating earnings multiple expansion in addition to earnings growth. Microsoft currently trades at just 26 times next year’s earnings.