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Microsoft Corporation Sell Side Celebration Is a Bust

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Microsoft Corporation (NASDAQ: MSFT) released its earnings for the thee months through June on Thursday afternoon, and the firm delivered incredibly. After beating expectations on many fronts, Wall Street appears to be wild about Microsoft stock. That goes, at least, for the sell side research houses covering the firm. On this morning’s stock market shares in the company are actually selling lower than Thursday’s closing price.

On Thursday Microsoft revealed that it earned 98 cents per share in the three months through June. The firm records the period as the fourth and final quarter of its fiscal year. Wall Street, by consensus, was expecting the firm to show earnings per share of just 71 cents.

That wasn’t the only surprise that Microsoft had in store. Sales came in at $24.7 billion. The consensus forecast for that number sat at $24.27 billion.

Microsoft gets massive recommendations

Here’s a round up of the upgrades that Microsoft Corporation drew in on Thursday and Friday. Keep in mind that shares in the firm opened at $73.45 on Friday morning. That means that not every report was fully positive on Microsoft’s future.

Microsoft Surface Studio

Deutsche Bank raised its price target to $85, from $80. The German investment bank kept its Buy rating on the stock.

Stifel analyst Brad Reback raised his price target to $80, up from $73. He reckons that reining in expenses and increasing cloud revenues will lead to “accelerating operating profit and FCF generation in coming quarters”.

Jeffries is still bearish on Microsoft stock. The firm raised its price target to $49 from $45. It’s still betting that Satya Nadella’s cloud expansion won’t live up to its promise. Jeffries reckons that most of the current revenue growth is likely to be temporary, or amortized over a multi-year period. The firm has an Underperform rating on the shares.

Cowen and Company put a rating of Outperform on the stock. It raised its price target to $80 from $78. Gregg Moskowitz reckons that expense concerns may fade over the coming months to give stock room to rise once more.

Citigroup kept its rating at Neutral, but bumped the price target from $72 to $74.

Canaccord Genuity set its price target on Microsoft Corporation (NASDAQ: MSFT) stock at $76, a big rise from the previous $68.

As you can see, most of Wall Street’s research houses seem to be pretty positive about Microsoft stock. Why then is the firm’s value falling on Friday morning.

What’s next for Microsoft stock?

Despite the massive earnings beat, traders seem to be nervous about expenses going forward. Guidance for costs at the Redmond, Washington firm came in higher than forecast. Microsoft Surface Pro 5

Microsoft has voluntarily made it clear that expenses may be rising going forward. The firm has also made a point of showing that it’s going to control those costs pro-actively. Traders still seem to be nervous about the effects this could have on margins going forward however.

Microsoft Corporation (NASDAQ: MSFT) stock now sits close to an all time high, larger than its dotcom bubble apex. That value is based on it being a high margin firm, well able to grow revenue while keeping costs low. Before they buy into the story at an even higher price, investors seem to want proof of that. Sell side researchers seem much more willing to simply trust the firm.

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Paul Shea

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