Why Microsoft Is Morgan Stanley's Top Pick Ahead Of The Q4 Print

Microsoft Corporation (NASDAQ: MSFT) is a top pick in the software sector due to near-term demand drivers and exposure to most long-term key secular trends, according to Morgan Stanley.

The comapny is scheduled to report fourth-quarter results July 22. 

The Microsoft Analyst: Keith Weiss maintained an Overweight rating on Microsoft with a $230 price target. 

The Microsoft Takeaways: Morgan Stanley expects a strong fourth quarter and conservative 2021 guidance from Microsoft, Weiss said in a Wednesday note. (See his track record here.)

Microsoft's edge in cloud adoption and exposure to high-priority and defensive IT projects continues to pave the path for double-digit revenue growth in 2021, the analyst said. 

While he said 2021 gross margins will be pressured from various mix-shift dynamics, Weiss sees Microsoft as still well-positioned to expand FY21 operating margins. 

Some of the expanding gross margin profiles across various cloud services include Azure, Office 365, Dynamics 365 and LinkedIn, the analyst said. 

Finally, Weiss assumed a bull case valuation of $370 and a bear case valuation of $150 on the stock.

MSFT Price Action: Microsoft shares were down 1.86% at $204.17 at last check Thursday.