By Vlad Schepkov
In his most recent note on Microsoft (NASDAQ:MSFT), Keith Weiss of Morgan Stanley took a bullish stance on the company, calling the software giant a “preferred name in software… that will be more resilient than its peers during a macro downturn”, as he reiterated an “Overweight” rating on the shares with $354 Price Target.
The analyst notes that “Microsoft continues to occupy the attractive secular segments of the software space” and highlights 4 key value drivers that should support the shares through a potential economic slump:
1. Microsoft’s high exposure to major CIO priorities – With increased spending in Cloud Computing, Software Security, Digital Transformation, and DW/BI/Analytics, the company “should directly benefit from their growth in 2022”.
2. “Microsoft is expected to be the top share gainer of IT wallets as workloads shift to the cloud” – according to the report, 39% of CIOs see MSFT as top IT wallet gainer vs just 20% for closest competitor - Amazon (NASDAQ:AMZN).
3. Growing lead in providing cloud services for enterprises – “Microsoft is expected to gain share in the public cloud space as enterprises continue to build out modern applications.”
4. Strong defensive position – “Among the CIOs surveyed, Security Software, DW/BI/Analytics and Digital Transformations are also segments least likely to be cut.”
Lastly, the analyst underscores the MSFT attractive valuation that is “still at a discount to peers:
~22x CY23e P/GAAP EPS (or ~21x on nGAAP EPS) vs >$50B peers at ~24x P/nGAAP EPS.”
The report concludes that sum of the above factors set “MSFT up as a defensive name with share gain momentum under the current market conditions.”
Morgan Stanley reiterates an "Overweight" rating on the stock, with $354 Price Target, implying ~40% from yesterday's closing price of $253.67.
Shares of Microsoft are down over 24% YTD, vs a loss of over 34% for the broader technology index - Nasdaq 100, and a 20% depreciation in the SPY.