Microsoft Growth Expected to Accelerate: UBS Analyst

Microsoft’s earnings and revenue growth is expected to accelerate on the heels of its earnings beatThursday, a UBS analyst said.

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“I think the Street has been surprised by the strength of the fundamentals of Microsoft — especially ahead of what is to be one of the biggest product launches in their history coming up in the next couple quarters,” said Brent Thill, a managing director in software research at UBS.

Thill thinks the software giant’s shares will climb to the high-$30 range. During trading on Friday, the company’s stock rose 5 percent.

“There are a lot of expensive homes right now in the software universe,” he said. “Microsoft is not one of them, and they’re exhibiting accelerating revenue growth, accelerating earnings, a big product cycle so it gives you cushion.”

Intuit and Oracle are two names in the software space that haven’t been executing well, Thill said. Relatively speaking, he thinks Microsoft looks “pretty attractive” in large-cap value.

“I think when you look at this quarter, the three big businesses that are the highest margin beat,” he said. “The two lower-margin businesses, which were search and entertainment, missed so if you want two businesses to miss, these are the businesses you wanted to miss.”

While Thill doesn’t think Microsoft will exit the search or gaming businesses, he does think the company has upside if it can strengthen some areas of weakness.

“They’ve got to get mobile right,” he said. “They’ve got to get tablet right. If they can get those businesses right, then the stock’s going a lot higher.”

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Brent Thill’s firm, UBS, owns shares of Microsoft and also has an investment banking conflict with Microsoft.



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