Morgan Stanley Sees Double Digit Growth at Microsoft

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  • Cloud storage and infrastructure will prove a key driver of growth.

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  • With growth in the cloud architecture space, Microsoft (MSFT) can show investors “durable double-digit growth” according to a recent comment from Morgan Stanley. Improving profit margins for the company’s commercial cloud product, known as Azure, make the software giant big relative to better-known names in the cloud space.

    Morgan Stanley has an Outperform rating on the stock, and has given shares a $155 price target, an 11.5 percent increase over the current price of shares near $139.

    Besides the growth opportunity and fat 31 percent profit margins, Microsoft has increased its dividend recently to $2.04 per share from $1.84 per share, and the company has spent billions of dollars in share buybacks with more planned. Shares at the tech giant are up 21 percent in the past year, about tenfold the return of the S&P 500 Index.

    Action to take: While we like Microsoft’s move in the high-margin cloud space, the trillion-dollar company is a bit expensive at 23 times forward earnings. Investors should wait for a pullback to at least $110 or lower, a price easily achieved on a market drop.

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  • Speculators may want to consider the June 2020 $155 call option as a bet on higher prices without overpaying for shares, but all holders of shares are cautioned not to expect the repeat of last quarter’s blowout earnings surprise.