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UBS analyst Karl Keirstead reaffirmed the firm’s Buy rating and $360 price target on Microsoft (NASDAQ:MSFT) in a note to investors Thursday, despite estimate revisions.
The analyst acknowledged “plenty of Microsoft issues” of late, including China supply chain concerns, FX headwinds, salary increases and a hiring slowdown, the risk of a downturn in ad-based businesses and on-prem license sales, and the potential impact of IT budget pressures on Azure
“Bottom line, for FY23 we’re cutting our revs estimate from $229.2b (c/c +15.7%) to $225.1b (c/c +14.8%) and our EPS estimate from $10.77 to $10.39 (+12.0%), with our estimate revisions extending beyond merely FX adjustments. Microsoft is messaging more firmly that ‘we are not immune to the macro’ and we are adjusting accordingly. For the closely-watched Azure segment, we are trimming our 1Q/Sept 2022 c/c estimate from 44.7% to 43.9%, and for FY23 from 39.2% to 38.3%,” wrote Keirstead.
In addition, the analyst said Microsoft shares now trade at a FCF multiple of 25x our 2023 FCF estimate and in their judgement, the multiple seems “compelling given that Microsoft deserves a premium, given its durability, higher growth rate, strong margin control and direct exposure (via Azure) to the cloud infrastructure theme.”
