Microsoft: Nadella's Cloud Transformation Can Rack up Gains, Says Argus

Microsoft: Nadella's Cloud Transformation Can Rack up Gains, Says Argus

Shares of Microsoft (MSFT) are up 23 cents at $84.10, after Joseph Bonner  with Argus Research raised his rating on the shares to Buy from Hold, with a price target of $95, after concluding the company’s corporate revenue can rise on the strength of its Azure cloud computing and other cloud services.

Microsoft trails Amazon  (AMZN) in cloud, but it can still profit from ” digital transformation,” he believes:

CEO Satya Nadella has pivoted Microsoft toward high-value commercial and cloud applications as the company has shaken off past missteps in the wireless phone handset market. According to industry tracker Gartner, Microsoft has about 7% market share in the public cloud, a distant second to Amazon but still much greater than that of other competitors. Given Microsoft’s massive commercial user base and long-term relationships, we believe that the company is well positioned to grow commercial revenue as the process of digital transformation continues both in the U.S. and internationally. The company’s consumer business is more steady, though it should show better profitability as it laps the disposal of the feature-phone business in November.

Bonner, reflecting on last Thursday’s fiscal Q1 report from the software giant, notes the jump in revenue in various areas of businesses software pertaining to “business processes,” including the 28% jump in Microsoft’s ” productivity ” division.

This is how CEO Satya Nadella has shifted Microsoft’s business:

Mr. Nadella has outlined some first principles based on his vision for Microsoft as a productivity and platform company for the’mobile-first, cloud-first world.’ His ambition is for Microsoft to’change the nature of work through digital technology.’ This means putting Microsoft at the center of business process transformation through Microsoft products that improve productivity and security while also providing hybrid cloud and AI platforms. He has refocused the company on investments in core productivity experiences and platform development. We think that this means Windows, Office, and business systems like SQL Server and Azure. He also plans to eliminate duplicative products. Other than the Surface tablet/laptop, we think that Microsoft has given up on its mobile strategy.

All of this prompts Bonner to raise his EPS estimates for this fiscal year to $3.39 per share from a prior $3.24 per share estimate, and to raise his fiscal 2019 estimate to $3.62 from $3.54 per share.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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