As Microsoft Corporation (NASDAQ:MSFT) was recently upgraded to Outperform by FBR Capital Markets, Daniel Ives explained, in an interview with CNBC, his firm’s renewed confidence in the software giant.
FBR recently raised its target price for shares in Microsoft Corporation (NASDAQ:MSFT) from $43 to $49. The upgrade comes after this firm rated the stock Market-Perform for the last three years.
Host Melissa Lee started the discussion by asking Ives what his firm sees in Microsoft Corporation (NASDAQ:MSFT) CEO Satya Nadella and his plans about cloud computing that indicate the company graining traction in this particular field. Ives told Lee that it’s more about Office 365. FBR Capital, he noted, can see a sort of $4- to $5-billion revenue stream generated by this product and see the company potentially becoming the biggest SaaS company in the world in two years.
Furthermore, Ives said that what Microsoft Corporation (NASDAQ:MSFT) is doing in mobile and in its turnaround leads them to see an incremental 40 cents to annual earnings. “That really gets us incrementally positive on the name,” he added.
Lee clarified by asking whether this upgrade is all about Office 365 on mobile devices and traction in cloud services following Microsoft Asia nipping at the heels of Amazon.com, Inc. (NASDAQ:AMZN) Web Services. Ives agreed adding that some of this might all be “gravy” because Microsoft Corporation (NASDAQ:MSFT) may start to grow high single digits if Office 365 becomes really successful and increases in penetration of the market. Ives said that market penetration is currently tiny for Office 365.
Ives added that as the software giant gets away from the challenged PC environment combined with the company’s efforts in mobile and tablet, his firm sees that there’s now a pilot guiding the company’s plane after 10 years of pain.
Watch the video available below where Ives also discusses earnings and multiples.
Investors in Microsoft Corporation (NASDAQ:MSFT) includes Donald Yacktman’s Yacktman Asset Management which had about 32.94 million shares in the company in the first quarter of the year. Another is Stephen Mandel’s Lone Pine Capital that reported 28.06 million shares in the software giant by the end of March. First Pacific Advisors Llc managed by Robert Rodriguez and Steven Romick also reported 16.87 million shares in the company with a valuation of about $691.69 million.