Oppenheimer upgraded the Dow component, citing the positive impact of a Biden presidency.
Dow component Microsoft Corp. (MSFT) is trading at a 3-week high on Thursday after an analyst upgrade, adding to gains posted following Tuesday’s U.S. presidential election. The stock fell 5% at the end of October despite beating Q1 2021 profit and revenue estimates by wide margins. Market watchers blamed modest Q2 revenue guidance for the sell-the-news reaction, which has now been fully repealed.
The company booked exceptionally strong results in the Intelligent Cloud Segment in the fiscal fourth quarter, with Azure posting 48% revenue growth year-over-year. The Productivity and Business Processes segment grew 11% year-over-year, underpinned by Teams corroborative software and Office Commercial products. Windows Server growth waned, generating a new headwind, but the current price is discounting that sales slump.
Oppenheimer analyst Timothy Horan upgraded Microsoft from ‘Perform’ to ‘Outperform’ and raised their price target to $260 ahead of Thursday’s opening bell, stating “a Biden presidency should improve relations with China where Microsoft has significant exposure while a Republican majority Senate should prevent higher corporate taxes. We also expect treasury yields to stay low, making MSFT’s 3% FCF yield attractive.”
Wall Street consensus is immaculate, with a ‘Strong Buy’ rating based upon 22 ‘Buy’ and 0 Hold’ recommendations. In addition, not a single analyst is recommending that shareholders sell their positions. Price targets currently range from a low of $235 to a Street-high $260 while the stock is now trading $12 below the low target. Disconnects between traders and analysts often reflect unrecognized internal issues but the company does seem to be significantly under-valued.
The stock broke out above the February 2020 high at 190.70 in June and added about 35 points into September’s all-time high at 232.86. A broad-based tech decline then set into motion, dropping Microsoft into 50-day moving average support a few weeks later. It’s now ejecting off that level for the second time, trading within 10 points of the prior high. Long-term relative strength readings have turned south in the last two months, raising odds for continued rangebound action, rather than a sustained assault on new highs.
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Alan Farley is the best-selling author of ‘The Master Swing Trader’ and market professional since the 1990s, with expertise in balance sheets, technical analysis, price action (tape reading), and broker performance.