Microsoft Trading At All-Time High After V-Shaped Recovery

Microsoft Corp. (MSFT) performed admirably during the first quarter’s pandemic swoon, beating fiscal Q3 2020 consensus estimates with $1.40 earnings-per-share (EPS) on $35.02 billion in revenue. Outstanding performance in the Productivity, Business Processes, and Intelligent Cloud divisions underpinned an impressive 14.6% year-over-year revenue growth while the company boasted that COVID-19 had a minimal impact on the bottom line.

‘Mr. Softee’ could lose commercial product sales in coming quarters, despite the first quarter’s remarkable results, because U.S and European corporations are primed to slash information technology budgets to cope with historic revenue contraction, triggered by the pandemic. I.T. spending tends to follow natural economic cycles, increasing during periods of economic growth and shrinking when recessions and downturns depress free cash flow across a vast customer base. These headwinds could eventually undermine the company’s long-term bullish outlook.

Protest Impact And Initiatives

Microsoft is headquartered in Seattle, on the front line of protests after the murder of George Floyd. The company has fostered a strong social identity in the last two decades so it isn’t surprising that CEO Satya Nadella outlined racial diversity initiatives, including a responsibility to “use our platform and resources intentionally to address systemic inequalities in our communities.” However, he offered few specifics, except for banning police from using their facial-recognition systems.

Microsoft Outlook

Wall Street analysts are nearly unanimous in their bullish outlook, issuing 22 ‘Buy’ and just one ‘Hold’ recommendation. Not one of the 23 analysts polled recommends that investors sell the stock at this time, despite the cyclical properties of company divisions.  Price targets currently range from a low of $190.00 to a street high $250.00, while the stock is now trading well below the median target of $207.26. This distribution strongly favors higher prices in coming weeks.

Microsoft has been an outstanding performer since 2017 when it finally cleared 17-year old resistance in the upper 50s. It nearly quadrupled into February 2020 and plunged with world markets into March, losing more than 30% of its value. The second quarter rally recouped those losses, lifting the stock to an all-time high last week. It’s also recovered 100% of the shareholder base lost during the downdraft, setting the stage for bullish price action into the third quarter.