Microsoft (MSFT) has “strong momentum” in its Surface-branded line of computers, its gaming business and its Azure cloud services, says Pacific Crest Securities, which hiked its price target on Microsoft stock to 70 from 65.
Pacific Crest analyst Brent Bracelin says Microsoft’s Surface business is booming despite the launch of Apple‘s (AAPL) MacBook Pro in October. The Surface lineup includes consumer tablet-laptop hybrids and a desktop computer family known as the Surface Studio, launched in December.
Bracelin also upgraded cloud platform provider Twilio (TWLO) to overweight from sector weight, with a 36 PT. But he lowered his price target on mortgage and financial software provider Ellie Mae (ELLI) to 107 from 128.
“Based on increasing confidence in a multiyear path to improve both growth and margins, Microsoft remains one of our favorite cloud stocks to own as momentum further builds in 2017,” said Bracelin in his research report.
IBD’S TAKE: Arista Networks, which went public in 2014, is the top-rated stock at IBD’S IPO Leaders, while others, such as Twilio and Acacia Communications, have faded.
He said the new model, however, does not reflect the recent LinkedIn acquisition, which he said could boost revenue though LinkedIn’s stock-based compensation “could dilute EPS by about 1% per original guidance.”
Microsoft stock edged up a fraction in early trading in the stock market today, near 62.50. Microsoft stock is extended from its October breakout at a 58.80 buy point, and it touched its all-time high of 64.10 on Dec. 22. Microsoft stock is trading just above its 50-day moving average. Shares in Microsoft gained 12% in 2016.
Twilio stock was up nearly 2.5% early Thursday, above 28, after Wednesday hitting its lowest price since its stock market debut on June 23. Its IPO priced at 15.
Ellie Mae stock was down 1%, near 85.50.
Twilio, a once-hot tech IPO, sells cloud-based software that provides real-time messaging services for many businesses to alert clients. Twilio stock peaked at 70.96 on Sept. 28 but plunged 55% in Q4 following a secondary offering.
“Base revenue, which excludes (Facebook‘s (FB)) WhatsApp and a handful of other variable customer accounts, remains resilient, growing by 70% year over year for more for 11 consecutive quarters,” said Bracelin.
The Pacific Crest analyst says Microsoft’s Surface business will likely be a bright spot in fiscal Q2, 2017.
“Surface revenue was $926 million in fiscal Q1, up 38% year-over-year. Surface Studio launched in December to positive reviews. According to a widely-cited DigiTimes report, Microsoft may have shipped 30,000 Surface Studios in fiscal Q2 2017, double its initial expectations of 15,000,” he wrote. “We have not been able to verify the report, but 30,000 Surface Studios selling at an average price of $3,500 would represent incremental revenue of $105 million.
“Additionally, Microsoft announced its strongest month ever of consumer Surface sales in November, buoyed by the company’s MacBook trade-in program, which also had its strongest month ever in November following the launch of Apple’s MacBook Pro at the end of October.”