Microsoft Surges Off Intermediate Support

Dow component Microsoft Corp. (MSFT) is trading at a 3-week high on Thursday after an analyst upgrade, adding to gains posted following Tuesday’s U.S. presidential election. The stock fell 5% at the end of October despite beating Q1 2021 profit and revenue estimates by wide margins.  Market watchers blamed modest Q2 revenue guidance for the sell-the-news reaction, which has now been fully repealed.

Microsoft Reports Strong Quarter

The company booked exceptionally strong results in the Intelligent Cloud Segment in the fiscal fourth quarter, with Azure posting 48% revenue growth year-over-year. The Productivity and Business Processes segment grew 11% year-over-year, underpinned by Teams corroborative software and Office Commercial products. Windows Server growth waned, generating a new headwind, but the current price is discounting that sales slump.

Oppenheimer analyst Timothy Horan upgraded Microsoft from ‘Perform’ to ‘Outperform’ and raised their price target to $260 ahead of Thursday’s opening bell, stating “a Biden presidency should improve relations with China where Microsoft has significant exposure while a Republican majority Senate should prevent higher corporate taxes. We also expect treasury yields to stay low, making MSFT’s 3% FCF yield attractive.”

Wall Street And Technical Outlook

Wall Street consensus is immaculate, with a ‘Strong Buy’ rating based upon 22 ‘Buy’ and 0 Hold’ recommendations. In addition, not a single analyst is recommending that shareholders sell their positions. Price targets currently range from a low of $235 to a Street-high $260 while the stock is now trading $12 below the low target.  Disconnects between traders and analysts often reflect unrecognized internal issues but the company does seem to be significantly under-valued.

The stock broke out above the February 2020 high at 190.70 in June and added about 35 points into September’s all-time high at 232.86. A broad-based tech decline then set into motion, dropping Microsoft into 50-day moving average support a few weeks later. It’s now ejecting off that level for the second time, trading within 10 points of the prior high.  Long-term relative strength readings have turned south in the last two months, raising odds for continued rangebound action, rather than a sustained assault on new highs.

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