By Sam Boughedda
Morgan Stanley analyst Keith Weiss reiterated an Overweight rating and lowered the firm's price target from $372 to $354 on Microsoft (NASDAQ:MSFT) shares in a note Tuesday.
The analyst said that signs of decelerating IT Budget growth expectations and a weakening consumer warrant increased focus on the durability of growth. In addition, Weiss explained that while Microsoft screens well relative to many software peers, it is not immune to macro and they have trimmed FY23 consumer estimates.
"The combination of high mix of overall Commercial revenue, almost all of which is Annuity based revenue (mostly ratable subscription revenue or term based licenses associated with multi-year Enterprise License Agreements) and relatively durable Commercial trends as indicated in our CIO survey work, we continue to favor MSFT in our coverage group," said Weiss. "However, Microsoft is not immune to macro impacts."
Morgan Stanley has a $473 bull case, $354 base case, and $256 bear case on Microsoft shares.
"We trim estimates across the non-commercial businesses in Productivity and Business Processes (PBP) and More Personal Computing (MPC) Segments, with the most significant impact from LinkedIn, followed by Search/Bing, Surface, Gaming, Windows OEM (because we previously cut our Windows OEM estimates) and last, Consumer Office," wrote Weiss. "Gross margins remain relatively unchanged and EPS moves ~1% or 11 cents lower in FY23. Given these estimates change, we lower our PT to $354 from prior $372. This implies a ~2.0x PEG, which is below the current large cap software average of 2.1x PEG."