Buy Microsoft For ‘Defensive Positioning’, Macquarie Says In Upgrade

At a time when the broader market is showing extreme volatility, investors may want to consider buying Microsoft Corporation (NASDAQ: MSFT) as it offers “better defensive positioning.”

The Analyst

Macquarie Research’s Sarah Hindlian’s upgraded Microsoft from Neutral to Overweight with a price target lifted from $106 to $121.

The Thesis

Microsoft reported two consecutive “robust” earnings reports and there’s reason to believe the momentum can continue moving forward, Hindlian said in the note.

A big part of Microsoft’s growth will come from its Azure cloud business, which is differentiated from its peers as it is enterprise-friendly. It can also offer incremental services like artificial intelligence, Azure Stack, Azure Sphere, edge computing and complex workloads.

In addition to aggressively pursuing high-growth segments like the cloud, which will boast a $277 billion total addressable market by 2021 the company isn’t ignoring the gaming market which will be valued at $180 billion in three years, the analyst said. In fact, the company’s gaming ecosystem is built on Azure’s services and the “all-you-can eat” model for subscribers along with a close relationship with developers are key differentiators.

Microsoft’s stock multiple has contracted throughout 2018 from 25 times two-year out P/E to 21.5 times and from 19 times two-years out EV/FCF to 17.6 times.

Price Action

Shares of Microsoft were trading higher by nearly 3 percent to $108.80 early Friday morning.

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