UPDATE: Evercore Group Reiterates on Microsoft as Risk/Reward Remains Attractive at Current Levels

In a report published Wednesday, Evercore Group analyst Kirk Materne reiterated an Overweight rating on Microsoft Corporation (NASDAQ: MSFT), and raised the price target from $38.00 to $45.00.

In the report, Evercore Group noted, “Risk/reward at current levels remains attractive independent of ultimate CEO decision. While there are wide ranging opinions in terms of the ‘best' choice for the next MSFT CEO, it is clear to us that the majority of investors would like to see Alan Mulally take on the role, with either Tony Bates or Satya Nadella groomed as his successor. This accomplishes two things: 1) it brings a true ‘outsider' perspective to the business, and 2) provides some continuity when taking a 3-5 year view. However, if this proves not to be the Board's decision, we believe the upside case for the stock remains intact as the next CEO: 1) will take over a growing commercial business, with two significant ‘cloud' opportunities in Office 365 and Azure; 2) will have the opportunity to trim costs ($3.8bn in unallocated; $31.6bn expected in total op-ex); 3) will inherit a cash-generating machine with $81bn on the balance sheet; and 4) will take over a consumer business that is already viewed (and valued) as a lost cause, so almost ANY progress in market share or profitability could help drive upside. In our view, even incremental adjustments to the cost structure and continued growth in the commercial businesses are enough to keep the stock on an upward trajectory given Microsoft's dividend yield (~3%) and valuation (13x CY15 EPS). So, while Mr. Mulally would likely create the most near-term lift in shares, we do not believe that the long-term risk/reward changes meaningfully if the Board goes in a different direction.”

Microsoft closed on Tuesday at $37.35.