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Microsoft updated its guidance to reflect higher foreign exchange rates ahead of its fourth-quarter earnings report.
Jenna Moon / Getty Images
Microsoft
You will not be immune to economic Citi said the slowdown lowered its target price for the stock. The bank said the tech giant’s growth in cloud-based services and the recent decline in its share price make it a “good place to hide” in the recession.
Analyst Tyler Radke reiterated the buy rating on Microsoft (stock ticker:
MSFT
) on Tuesday, even as it lowered its target price to $330 from $364.
“We remain stock buyers with inventory down around 24% [year-to-date] And a profitable combination of compelling relative valuation, business model resilience, and massive revenue growth versus the S&P500 companies.”
Radke is particularly optimistic about the growth prospects of Azure, Microsoft’s cloud computing platform. He believes that Azure’s revenue streams will help drive long-term double-digit growth and expand operating margins. He added that Office365 is another strong growth area for the company.
However, the analyst acknowledged that it was “hard to ignore” the bigger picture. A strong dollar could lead to significant foreign exchange headwinds for the company as it heads to report its fourth-quarter earnings, while demand for personal computers slows. Radke wrote that the company will likely have dodged most of these issues in the current quarter, but he expects management to release a more conservative view of fiscal 2023 when Microsoft reports its earnings on July 26.
“The days of MSFT cadences/blurs may soon become a distant memory,” Radke wrote.
Microsoft recently updated its guidance for the June quarter to reflect increased pressure from foreign exchange rates. The company cut its revenue forecast by $460 million and its earnings per share forecast by 3 cents.
Analysts expect Microsoft to report earnings of $2.30 per share versus $52.5 billion in revenue for the June quarter. Last week, Morgan Stanley analyst Keith Weiss trimmed his peer price target for the stock, citing concerns about slowing IT spending and weakening consumer trends. Like Radke, he maintained his plus rating on the stock, optimistic about the company’s long-term prospects.
Microsoft shares rose 0.8% to $256.33 in pre-market trading on Tuesday. Shares have lost 24% this year, weighed down by recession fears and rising interest rates.
Write to Sabrina Escobar at sabrina.escobar@barrons.com
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