Microsoft stock hits another record high on belief that big growth is ‘far from over’

Analysts found little to complain about following Microsoft Corp.’s latest earnings report, as the software and cloud giant once again topped expectations and its shares hit a new intraday high in Friday trading.

The “lone blemish” in Microsoft’s MSFT, +1.67% results was its Azure revenue, according to William Blair’s Jason Ader, as growth slowed to 64%, or 68% in constant currency, following three 70%-plus quarters.

Microsoft Azure is a cloud computing service for building and managing applications and services through Microsoft-managed data centers.

While Ader said the Azure numbers were “likely to draw scrutiny,” he saw signals of “continued strong growth for Azure” in the company’s upbeat “intelligent-cloud” outlook and its recently signed deal with AT&T Inc. T, -0.20% 

Overall, Ader said that Microsoft’s fiscal fourth-quarter metrics “demonstrate a robust and diverse product portfolio, and continued margin expansion as Microsoft drives leverage in its cloud business.” He pointed to the company’s 69% gross margin as well as “record or multiyear quarterly high” revenue in its three major units.

Ader has an outperform rating on the shares, which are up 2.5% in morning trading.

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Macquarie’s Sarah Hindlian praised Microsoft’s “sustainability of growth for Azure, strength in Server Products despite difficult comparatives, and dramatic margin improvements,” while boosting her target price to $160 from $150. “Few companies represent such solid positioning, growth and at a reasonable multiple,” she continued.

Hindlian has an outperform rating on the stock.

Wells Fargo’s Aaron Rakers commented on Microsoft’s arrangement with AT&T, which represents the largest Azure deal in the company’s history. “We think investors will consider Microsoft’s Azure results and commentary on large enterprise deals as a step forward in the lift-and-shift adoption of enterprise mission-critical application workloads to public cloud / multi-cloud,” he said.

Bernstein’s Mark Moerdler called Microsoft’s growth story “far from over” as he cheered double-digit operating-profit growth. “While Azure growth was lower than we expected the company delivered strong growth in numerous areas including Server & Tools which could be recognizing as Azure,” he said.

Moerdler rates the stock at outperform with a $162 target.

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Canaccord Genuity analyst Richard Davis was impressed that Microsoft’s legacy business, which he defines as on-premise Office software, Windows, and legacy servers, are showing “consistent growth,” which he didn’t initially expect.

“The point is that we do not see some sort of cliff event in which Microsoft’s legacy business rolls over hard, and like the large majority of people who follow this company, we are in the consensus that the growth drivers will continue to deliver 20%+ growth for about half of the business,” wrote Davis, who has a buy rating on the stock and raised his target price to $155 from $145.

“That’s a recipe for many more quarters and years of growth, so when we hear investors get jumpy because Microsoft continues to advance in ‘beast mode,’ we suggest they relax and enjoy what looks to us to be several more years of above average growth and price appreciation,” he said.

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Even Jefferies’ John DiFucci, the only analyst with a bearish rating on Microsoft’s stock, admitted that Microsoft’s numbers were strong “not only relative to conservative estimates (based on guidance), but regardless of expectations.” He said that it is “impressive for a company of this scale to be able to demonstrate the ability to grow double digits” but questioned the long-term potential for Azure margin improvement.

DiFucci kept his underperform rating on the shares while upping his target price to $93 from $90.

Microsoft shares are up 37% so far this year, while the Dow Jones Industrial Average DJIA, +0.22% has climbed 17%.

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