What's Coming For Microsoft?

This week, Deutsche Bank analysts Karl Keirstead and Imtiaz Koujalgi attended Microsoft Corporation (NASDAQ: MSFT)’s annual partner & reseller event in Orlando. They expected to sharpen their view of the company’s momentum ahead of the announcement of fourth-quarter results scheduled for next Tuesday.

The experts also had an in depth conversation with a Fortune 50 customer regarding its Microsoft “spending and scope of relationship.” The company declared a 30 percent ramp in its Microsoft spend, while displacing International Business Machines Corp. (NYSE: IBM) and other vendors, since the former bundles several services into its EAs.

According to the note, despite the limited impact “Commercial Cloud” revenues on the company’s current mix (7 percent), the transition is having an “out-sized” effect on Street sentiment.

On the other hand, “weakness in the PC market as well as the recent Phone headcount cuts” led the firm to adjust its model. Net, the analysts are raising their fiscal 2016 adjusted EPS estimate from $2.94 to $3.03.

Keirstead and Koujalgi note that the tech behemoth will present at Deutsche Bank’s technology conference in Las Vegas on September 16. The firm maintains a Buy rating and $55.00 price target on shares of Microsoft, on the back of attractive risk/reward.

In terms of valuation, they note the weak PC market seems priced-in. “The cloud transition story is playing out successfully and will lift sentiment for some time and that MSFT’s valuation multiples will appear more reasonable to the skeptics as EPS growth recovers in FY16,” Keirstead and Koujalgi concluded.