Microsoft Corporation on the Brink of Taking Share in Gaming: Oppenheimer

Are Microsoft's LinkedIn and gaming businesses undervalued by investors? Oppenheimer's Timothy Horan wagers yes.


Microsoft Corporation (NASDAQ:MSFT) served up a killer quarterly performance last Wednesday. With an outclass for the first half of fiscal 2018 now underway, the software giant’s team has bumped up its margin guide for the full year, thanks to a rise in cloud growth.

Oppenheimer analyst Timothy Horan believes both LinkedIn and gaming segments have odds on “ability to surprise on the upside,” calling these segments “likely underestimated” by the Street.

In fact, the analyst bets the company can grab gaming share, especially as the market transitions to an increasing subscription-based SaaS model. With this shift in mind, Horan angles for a surge in margins from the giant.

In reaction, the analyst reiterates an Outperform rating on MSFT stock with a $115 price target, which implies a nearly 27% upside from current levels. (To watch Horan’s track record, click here)

For the second fiscal quarter of 2018, cloud rose 39% year-over-year, which the analyst attributes to Azure’s 98% growth.

Notably, “All three operating segments beat our estimates, and fundamental business drivers are positive,” commends the analyst, explaining: “MSFT is proving that it can execute on its hybrid cloud strategy and is seeing strong demand for its new Stack service, AI and IOT.”

At the core, “Microsoft had a very strong quarter across every line of business, especially integrated hybrid cloud services, which make it easy for enterprises to migrate from legacy IT to new cloud-based services. Microsoft is now pushing the Cloud to more of a distributed or Fog service (AI/IOT) to further leverage its enterprise IT stronghold. Strong cloud, particularly for new software-based value-added cloud such as Dynamics, and E5 in 365 should be a strong driver of margins. We also see upside from integrating LinkedIn more closely with its offerings and driving Gaming to a cloud service,” Horan contends, believing the giant is in the strongest standing as far as “cloud for hybrid.”

On back of the print, Horan hikes his fiscal 2018 EPS from $3.55 to $3.69, attributing his confidence to strength in top line gains.

TipRanks indicates solid positive sentiment on Wall Street circling this software giant. Based on 20 analysts polled in the last 3 months, the majority of 18 rate a Buy on Microsoft stock, with only 1 playing it safe with a Hold, and one issuing a Sell on the stock. The 12-month consensus price target stands at $104.56, marking a nearly 14% upside from where the stock is currently trading.