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Microsoft Doing All The Right Things To Repeat Q1 Success In Q2

Microsoft Doing All The Right Things To Repeat Q1 Success In Q2|Citi|NASDAQ:MSFT

Shares of Microsoft Corporation MSFT 4.65% climbed about 6 percent in the pre-market hours Friday after PC strength and less fall off in on-prem Office led to better-than-expected quarterly results.

However, Citi retained its Sell rating. As such, the firm prefers Oracle Corporation ORCL 0.32% and SAP SE (ADR) SAP 2.02% to Microsoft based on relative secular position and valuation.

For the first quarter, Microsoft reported EPS of $0.76, which was $0.07 ahead of Citi/$0.08 ahead of Street and non-GAAP revenue of $22.3 billion (non-GAAP) also topped Citi/Street estimate of $21.8 billion/ $21.6 billion, respectively.

Among key highlights, Azure growth surged (121 percent year-over-year versus 108 percent in the fourth quarter) and cloud gross margin rose above past four quarters flattish trend. In addition, Microsoft saw an increase in Office365 ASP.

However, the Windows OS maker again guided second quarter meaningfully below the Street.

“While we expect they can beat implied Op.Inc guidance (6 percent upside in Q3), we see numbers having more downside than upside as MSFT invests and churns through on-prem declines,” analyst Walter Pritchard wrote in a note.

However, the analyst noted that the company is doing the right things to reposition its Intelligent Cloud business.

“This landscape is a tough one for selling software IP and MSFT has a large installed base here in the midst of significant change in how software is built and run,” Pritchard highlighted.

Meanwhile, Pritchard slightly increased his price target by $1 to $41.

Shares of Microsoft closed Thursday’s trading at $57.25. In the pre-market hours Friday, they gained 5.97 percent to $60.67, and at last check, shares were up 4.49 percent at $59.82.

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DateFirmActionFromTo
Oct 2016NomuraMaintainsBuy
Oct 2016William BlairUpgradesMarket PerformOutperform
Oct 2016WunderlichUpgradesHoldBuy

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