Why Oppenheimer Sees Big Upside in Microsoft Now

By Chris Lange Updated Jan 13, 11:50AM EST · Published Mar 17, 9:55AM EDT

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Why Oppenheimer Sees Big Upside in Microsoft Now — © Thinkstock

As communications and cloud services continue to converge, one key analyst firm believes the Microsoft Corp. (NASDAQ: MSFT) vision of a mobile first, cloud world. According to the firm, the company is putting the right strategy in place to be at the forefront of the next generation of computing and to defend and grow market share.

Instead of fighting the inevitable shift to the cloud, Microsoft is fully embracing it, enabling enterprise adoption of a fully integrated hybrid stack (IaaS/PaaS/SaaS) and using the power of the cloud to introduce an overall better operating system (for both developers/customers) that works across all Windows devices.

Oppenheimer is assuming coverage of Microsoft with an Outperform rating and a $62 price target. Ultimately, the firm believes Microsoft will be successful in driving the only true unified hybrid cloud platform.

In the report, Oppenheimer detailed:

Microsoft’s goal is to transform both its enterprise/consumer offerings from where its customer base needed to use it to them choosing to use it and loving to use it. While execution is the biggest risk, a seamless, integrated cloud offering, combined with a unified development platform across devices is the right strategy for the future, in our opinion.

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The company controls over 90% of the enterprise office suite and about 75% of the enterprise OS market. As workloads shift to the cloud, the firm believes Microsoft will be successful in bundling in premium SaaS/PaaS products, enabling it to defend its market share and expand its total addressable market with new product offerings.

Oppenheimer believes most IT functions will be shifted to some form of cloud services by 2020, which is not lost on Microsoft. The firm believes that the company will reach its goal of $20 billion in cloud revenue by fiscal 2018 (roughly a $9.4 billion run-rate currently) with margins scaling rapidly. The firm estimates gross margins of 63.5% in 2018, up from 46% currently.

Oppenheimer concluded its report saying:

We believe Microsoft has the right strategy in place for the next generation of computing. It has the only true vertically integrated hybrid cloud offering and has developed an OS to work across any Windows device. It has also made its software compatible with other OS’ to drive usage. Microsoft is doing all the right things, assume at Outperform.

Shares of Microsoft were trading at $54.40 on Thursday, with a consensus analyst price target of $58.55 and a 52-week trading range of $39.72 to $56.85.

About the Author Chris Lange →

Chris Lange is a writer for 24/7 Wall St., based in Houston. He has covered financial markets over the past decade with an emphasis on healthcare, tech, and IPOs. During this time, he has published thousands of articles with insightful analysis across these complex fields. Currently, Lange's focus is on military and geopolitical topics.

Lange's work has been quoted or mentioned in Forbes, The New York Times, Business Insider, USA Today, MSN, Yahoo, The Verge, Vice, The Intelligencer, Quartz, Nasdaq, The Motley Fool, Fox Business, International Business Times, The Street, Seeking Alpha, Barron’s, Benzinga, and many other major publications.

A graduate of Southwestern University in Georgetown, Texas, Lange majored in business with a particular focus on investments. He has previous experience in the banking industry and startups.