Microsoft Is a ‘Good Place to Hide’ in a Recession. This Analyst Cut His Price Target Anyway.
Microsoft updated its guidance to reflect higher foreign exchange headwinds ahead of its fourth-quarter earnings report.
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Microsoft won’t be immune to an economic slowdown, Citi said, cutting its price target on the stock. But the tech giant’s growth in cloud-based services and a recent pullback in its share price make it a “good place to hide” in a recession, the bank said.
Analyst Tyler Radke reiterated a Buy rating on Microsoft (ticker: MSFT
) on Tuesday, even as he lowered his price target to $330 from $364.
“We continue to be buyers of shares with the stock off ~24% [year-to-date] and a lucrative combination of compelling relative valuation, business model resiliency and outsized revenue growth vs. S&P500 companies,” Radke wrote.
Radke is especially bullish about the growth prospects of Azure, Microsoft’s cloud-based computing platform. He believes Azure revenue streams will help drive double-digit growth in the long run and expand operating margins. Office365 is another solid growth area for the company, he added.
That said, the analyst acknowledged it was “tough to ignore” the bigger picture. A strong dollar could generate significant foreign exchange headwinds for the company heading into its fiscal fourth-quarter earnings report, while demand for personal computers has been slowing. It’s possible that the company evaded most of these issues in the current quarter, Radke wrote, but he expects management will issue a more conservative outlook for fiscal 2023 when Microsoft reports earnings on July 26.
“The days of clear-cut beat/raises for MSFT may soon be a distant memory,” Radke wrote.
Microsoft recently updated its guidance for the June quarter to reflect higher pressure from foreign exchange rates. The company reduced its revenue forecast by $460 million and earnings per share outlook by 3 cents.
Analysts are expecting Microsoft to post earnings of $2.30 a share on $52.5 billion in revenue for the June quarter. Last week, Morgan Stanley analyst Keith Weiss also trimmed his price target for the stock, citing concerns over slowing IT spending and weakening consumer trends. Like Radke, he kept his Overweight rating on the stock, bullish about the company’s long-term prospects.
Shares of Microsoft were up 0.8% to $256.33 in premarket trading on Tuesday. The shares have lost 24% this year, battered by recessionary fears and rising interest rates.
Write to Sabrina Escobar at [email protected]
