Microsoft Corporation (Nasdaq: MSFT) stock gained 2.8 percent on Friday morning after reporting a big earnings beat Thursday afternoon. Now that Wall Street analysts have had a chance to comb through the numbers, they see more good things ahead for Microsoft and its long-term investors.
Morgan Stanley analyst Keith Weiss says Microsoft’s quarter demonstrated the company is on track to hit the $1 trillion market cap mark in the near future. Weiss has raised his full-year earnings per share estimate for Microsoft by 8 percent to $4.37, and he says increasing public cloud adoption and improving margins are a recipe for $50 billion in earnings before interest and taxes in 2020.
“With improvement in gross margins, continued opex discipline and strong capital return, we see a durable teens total return profile at MSFT,” Weiss says.
Priced at about 22 times 2019 estimated EPS, Weiss says MSFT stock isn’t exactly cheap. However, he says investors will continue to be willing to pay a premium for the type of growth Microsoft is delivering.
[See: Artificial Intelligence Stocks: The 10 Best AI Companies.]
“Multiple expansion from here will likely be predicated on gaining comfort on the sustainability of low to mid teens EPS growth,” he says.
Morningstar analyst Andrew Lange credits Microsoft CEO Satya Nadella for much of the company’s recent success.
“In our view, the company has become nimbler and more user-friendly under Nadella, terms that would never be applied to the Microsoft of old, ensuring the firm will maintain its status among technology’s elite for years to come,” Lange says.
One of the highlights of Microsoft’s quarter was its 89 percent Azure revenue growth, and Lange says Microsoft is now firmly entrenched as the number two public cloud service behind Amazon.com ( AMZN) AWS.
KeyBanc analyst Brent Bracelin says companies will be dumping massive amounts of money into public cloud services over the next several years.
“Spending on public cloud services is poised to triple to $314 billion by 2022, up from $97 billion in 2017, with Microsoft well positioned to capture a meaningful share,” Bracelin says.
[See: 7 of the Best Stocks to Buy for 2018.]
Morgan Stanley has an “overweight” rating and $130 price target for Microsoft. Morningstar has a “fairly valued” rating and $122 fair value estimate for MSFT stock. KeyBanc has an “overweight” rating and $123 target for Microsoft.
More from U.S. News
7 of the Best Tech Stocks to Buy for 2018
52 Dividend Stocks Boasting 25-Year Dividend Growth
9 Best Cheap Stocks to Buy Now Under $5
Microsoft Corporation (MSFT) Stock Is Just Getting Started originally appeared on usnews.com
