Sustained Commercial Momentum Should Offset Headwinds for Microsoft

By Sam Boughedda

Morgan Stanley maintained an Overweight rating on Microsoft (NASDAQ:) but cut the price target to $325 from $354, saying sustained momentum in Microsoft’s commercial business should partially offset mounting PC and FX headwinds in a note to clients on Friday.

Their note was focused on Microsoft’s fiscal 2023 earnings release.

“Longer-term teens total return profile and an attractive valuation at

“As IT budget growth expectations continue to moderate, FX becomes more unfavorable, and PC data likely pressures Windows OEM results, investors are understandably concerned with the broader impact these factors could have on Microsoft’s results and outlook,” they added.

However, Morgan Stanley believes strong feedback on the commercial businesses from its channel conversations and another set of robust Microsoft-specific results from its most recent CIO survey bolster the firm’s confidence in Microsoft’s resilience across key secular growth areas, as well as positioning in defensive categories, both supporting demand for Microsoft solutions.

“Given the weaker PC demand environment and rising FX headwinds, we reduced our revenue forecast for 1QFY23 by 1% to $49.2 billion, and FY23 revenue by ~2.3% to $214.2 billion. Factoring in the impact on expenses, we also lowered our EPS in 1QFY23 to $2.26 and FY23 EPS to $9.74. Applying a ~30x earnings multiple on CY23 earnings, this implies a new PT of $325, down from the prior $354. With the company still trading at a discount to peers: $50B peers at ~26x P/nGAAP EPS or a PEG ratio of 1.7x on our CY23 numbers – sets MSFT up as one of our favorites in software,” the analysts concluded.