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Last Minute Thought: Buy or Sell Microsoft Before Earnings?

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Microsoft (MSFT) will report F2Q21 earnings today after the bell, and Wedbush analyst Daniel Ives believes there is enough evidence to suggest the tech giant will post another "beat and raise special."

As with many companies offering cloud-based solutions, Microsoft has undoubtably benefitted from the Covid-19 driven trends, but Ives expects the tech giant to keep on reaping the rewards of the change in workplace behavior.

“This current work from home environment is further catalyzing more enterprises to make the strategic cloud shift with Microsoft across the board with Azure growth remaining brisk,” the 5-star analyst said. “In many cases we are seeing enterprises accelerate their digital transformation (larger deals) and cloud strategy with Microsoft by 6 to 12 months as the prospects of a semi remote workforce for the foreseeable future looks here to stay.”

The good news for Microsoft, says Ives, is that there is still much room for growth, with the company only “~35% through penetrating its unparalleled installed base on the cloud transition.”

Ives thinks companies are allocating an increasingly large chunk of budgets toward transitioning to the cloud and believes 85-90% of 2021 cloud deployments have already been given the go ahead by company execs. Microsoft is the “core cloud name to play this transformational secular trend.”

With vaccines being deployed across the globe, and the return of many to office work, the WFH tailwind is set to subside over the next year, but Ives believes Microsoft should be insulated from the return to normality, expecting the cloud shift “to gain speed as many CIOs aggressively go down the digital transformation path.”

Ives also expects Microsoft’s Azure/Office 365 footprint to expand and narrow the gap on segment leader Amazon Web Services (AWS) in 2021.

Accordingly, to reflect “stronger than expected checks and cloud secular tailwinds,” Ives slightly lifts his MSFT price target from $260 to $270. Naturally, Ives’ rating for the tech giant remains an Outperform (i.e. Buy) (To watch Ives’ track record, click here)

The Wedbush analyst’s call receives the Street’s unanimous backing. With Buys only – 23, in total – the stock qualifies with a Strong Buy consensus rating. The forecast is for upside of ~9% in the year ahead, given the average price target stands at $253.30. (See MSFT stock analysis on TipRanks)

To find good ideas for tech stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.