Could Microsoft Corporation (NASDAQ:MSFT) be a trailblazer as the first enterprise software stock to hit the “Big T?” If this software giant appreciates between 10% to 20% each year over the course of the upcoming five years, one of Wall Street’s software analyst experts thinks yes.
Top analyst Richard Davis of Canaccord believes Microsoft is on its way to hook a trillion dollars in valuation as early as the fourth quarter of 2019- and especially by early 2020.
Singing the praises of this “news of the future,” the analyst reiterates a Buy rating on MSFT stock with a $94 price target, which aligns with current trading levels.
Davis makes a bullish case, giving kudos to the giant’s leadership under CEO Satya Nadella: “Microsoft has four growth drivers that should increase from about 50% of revenues in F2017 to over 70% in F2022: O365 upgrades, an emerging CRM/marketing suite versus Salesforce, strong demand tailwinds for the Xbox franchise, and a public cloud platform in Azure. You can argue whether the transition was already underway or not, but the fact is that with the appointment of Satya Nadella to CEO, Microsoft fundamentally changed the orientation of its business from one too focused on defending technological fiefdoms to a people-centered approach that enables users to connect to Microsoft technology from any device, anywhere.”
In fact, the collective revenue pooled together from Microsoft’s leading growth segments could take a lion’s share of total revenue even “sooner.” By Davis’ calculation, a moderate ramp in revenue gains would roll along, but in four or more years’ time, a “sharper acceleration” would hit.
Regarding Microsoft’s margin, Davis calls for continued investments to back said growth initiatives, citing “R&D hires, salespeople additions, and tuck-in acquisitions.” Yet, the analyst acknowledges that based on the test of time, “scale eventually overwhelms spend,” which serves to drive margins up- albeit at times in a “discontinuously positive direction.”
Present-day, the analyst assesses a stock market in full-fledged “bull market rally mode.” That being said, Davis is not new to the Wall Street game and has lived to see that “investor sentiment changes much faster than companies can change their business models.” What does this mean? Davis explains that on the financial front, investors opt to feed funds into market players realizing dollars over “speeders who hope to someday do so.”
Overall, with Microsoft bringing roughly 31% in free cash flow margins to the table, Davis spotlights a software giant who has high chances to experience margin expansion as revenue gains spiral- translating to a jump in beats and raises, producing the kind of stock that can outclass the market.
Richard Davis has a very good TipRanks score with a 74% success rate and a high ranking of #12 out of 4,757 analysts. Davis collects 26.2% in his yearly returns. When recommending MSFT stock, Davis realizes 11.5% in average profits on the stock.
TipRanks underscores a Wall Street that goes to the confident bulls on Microsoft stock’s prospects. Out of 18 analysts polled in the last 3 months, 17 are bullish on MSFT stock with just 1 on the sidelines. With a return potential of nearly 10%, the stock’s consensus target price stands at $101.88.