After assuming coverage of the software industry, Jefferies analyst Brent Thill upgraded Microsoft (MSFT) to Buy as he sees "excellent visibility" with a "clear line of sight" into double digit revenue growth for the near future, and downgraded Oracle (ORCL) to Hold as the company “loses ground” in the infrastructure business with workloads migrating to the cloud.
SOFTWARE INDUSTRY: Jefferies' Thill assumed coverage of the software industry with a favorable view on the fundamental environment but "a more selective approach to stocks given rich valuations." The analyst believes the high multiples associated with recent IPOS such as Zoom Video (ZM), Slack Technologies (WORK), and Crowdstrike (CRWD) are "unsustainable." Given the recent macroeconomic backdrop, he favors large-cap names within his coverage universe such as Microsoft, Salesforce (CRM), Adobe (ADBE) and Intuit (INTU), with a balance of “good” growth and multiple support. Thill’s top picks are Microsoft, Salesforce, Adobe, and Intuit.
BUY MICROSOFT: Seeing a large diversified business with "excellent visibility that has a clear line of sight" into double-digit revenue growth for the foreseeable future, Jefferies' Thill upgraded Microsoft to Buy from Hold and raised his price target on the shares to $160 from $93. The analyst also cited multiple growth drivers like Azure, Office, and LinkedIn; favorable secular trends; profitability and free cash flow; and the company’s continued return of capital to shareholders.
MOVING TO SIDELINES ON ORACLE: Thill also downgraded Oracle to Hold from Buy and lowered his price target on the shares to $60 from $66, saying he prefers Microsoft over Oracle given the former’s double-digit revenue growth at scale. The analyst pointed out that Oracle has "significantly underperformed" for years as the company loses ground in the infrastructure business with workloads migrating to the cloud.
OTHER RATING CHANGES: Additionally, Thill downgraded Carbonite (CARB) and Check Point (CHKP) to Hold from Buy. The analyst sees continued execution risk for Carbonite, lowering his price target on the shares to $17 from $29. While he believes Check Point has limited downside potential, he would need to see evidence of material catalysts that reinvigorate product growth and accelerate total revenue growth to become more positive.
PRICE ACTION: In afternoon trading, shares of Microsoft are fractionally higher to $137.19, while Oracle's stock has dropped over 1% to $54.20.
Microsoft
-0.1 (-0.07%)
Oracle
-0.75 (-1.37%)
Check Point
-1.35 (-1.22%)
Carbonite
-0.97 (-6.34%)
Intuit
-3.76 (-1.41%)
Adobe
-3.46 (-1.25%)
Salesforce
-1.29 (-0.87%)
Crowdstrike
-2.93 (-4.27%)
Bought by CRM
-0.41 (-1.57%)
Zoom Video
-4.03 (-5.23%)