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Evercore: Microsoft Stock Can Keep Rising for 5 Reasons

Evercore: Microsoft Stock Can Keep Rising for 5 Reasons
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By    |   Friday, 14 February 2020 10:43 AM

Evercore ISI analyst Kirk Materne raised his price target on Microsoft Corp. stock and offered a handful of reasons why he thinks the shares will continue to rise.

Materne writes that after a recent visit to Microsoft (MSFT) headquarters in Redmond, Washington, he is more convinced than ever that the software giant is “firing on all cylinders,” with “plenty of gas in the tank when taking a multiyear view,” Barron’s reported.

Materne’s list of five reasons the stock will continue to rise:

  1. Commercial cloud king: Microsoft’s commercial cloud business could top $100 billion in revenue by fiscal 2024.
  2. Reshaping the enterprise productivity market: Materne predicts the combination of the company’s Teams collaboration software and the Microsoft Power Platform analytics software can “reshape the business productivity landscape.”
  3. Business application growth: “Over the next 3-5 years, we expect Microsoft to make a bigger bet in the $277 billion enterprise apps market and we believe this could open up a whole new investment narrative,” Materne writes.
  4. Games: “In our view, 5G adoption and streaming could create an opportunity for Microsoft to reframe the investor discussion around its gaming franchise.”
  5. Going Green: “We believe Microsoft’s commitment to sustainability adds another positive wrinkle to the investment narrative (ESG) and there could be some business benefits longer-term in terms of more-efficient data centers, etc.,” Barron’s quoted him as saying.

“The bottom line is we believe that Microsoft is well-positioned to grow its top line and bottom line in the double digits for the foreseeable future, and the stock should continue to outpace the broader markets over the next few years.”

The analyst also repeated his “outperform rating” on Microsoft stock and lifted his price target to $212 from $190. Microsoft stock was at $184.75, up $1.04, or 0.6%, early Friday.

Meanwhile, outsized stock price gains for Apple Inc. and Microsoft mean the two tech titans' shares have attained unusual status: a combined weight of 10% of the benchmark S&P 500 index.

For some stock watchers, this is an example of worrisome concentration that could undermine Wall Street's record run. The S&P 500, which many use a proxy for the overall market, is a market-cap weighted index, meaning that large stocks carry more influence, Reuters explained.

Microsoft recently represented 5.183% of the index with Apple at 4.835%, for 10.018% total, according to Refinitiv data. Their increasingly heavy weight is spurred by their strong outperformance; since the end of 2018, Apple's share price (AAPL) has doubled and Microsoft's is up 80% while the S&P 500 has climbed about 35%.

Apple and Microsoft together have a greater weight in the S&P 500 than seven of its 11 industry sectors, including the consumer discretionary and industrials groups.

"A small number of names are fueling a huge part of this rally,” said Matt Maley, chief market strategist at Miller Tabak, adding that such a "narrow market" is vulnerable to a 7% to 10% pullback. "It just shows that people are buying and concentrating in momentum stocks rather than buying the overall market because of a strong economy," Maley said.

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Evercore ISI analyst Kirk Materne raised his price target on Microsoft stock and offered a handful of reasons why he thinks the shares will continue to rise.
microsoft, msft, stock, shares
Friday, 14 February 2020 10:43 AM
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