Microsoft (MSFT 1.75%) delivered another impressive earnings report on April 25. Revenue and earnings per share (EPS) respectively grew 17% and 20% year over year for the fiscal 2024 third quarter (ended March 31), and the analyst at Wells Fargo sees more gains in store.
Analyst Michael Turrin raised the price target on Microsoft from $480 to $500 and maintained an overweight (buy) rating on the shares. The new price target represents potential upside of 25% over the current share price of $400.
With the stock already trading at a premium valuation, is that price target realistic?
Fresh highs could be coming for Microsoft stock in 2024
Shares of Microsoft are already up 30% over the last 12 months, but they're still trading close to their 10-year average price-to-earnings (P/E) ratio of 32. The company's consistent double-digit growth, strong brand, and leadership in artificial intelligence (AI) are reasons the stock is still considered fairly valued while trading within reach of its all-time high.
Microsoft delivered robust earnings growth as it continued seeing many organizations adopt its AI services. Azure and other cloud services revenue grew 31% year over year during the latest quarter with AI services contributing 7 percentage points to that growth.
But most impressive was that margins continued to expand, which is allowing EPS to grow faster than the top line. Microsoft's ability to deliver profitable growth is why the stock may continue to reach new highs in 2024.
The consensus analyst estimate has EPS improving to $13.34 in fiscal 2025. The stock will need to trade at a 37.5 P/E multiple based on that estimate to hit Wells Fargo's $500 price target. That seems quite doable given the stock's impressive track record and strong position in AI.
