Wedbush Morgan upgraded MicroStrategy (MSTR ) to buy from hold. On Friday, the company reported first-quarter earnings per share of 89 cents.
Analyst Nathan Schneiderman says he is upgrading MicroStrategy based on its compelling valuation at less than 6 times free cash flow. He notes that over the past few months, the stock has fallen from $70 to the low $40s.
While he acknowledges management's new policies have proven unpopular with investors and the sell side, he still believes cash flow generation ultimately drives stock valuation. Schneiderman says he's aware there are a significant number of negative issues weighing on the company, but notes there are also positives, including better-than-expected first-quarter operating profit.
The analyst sees EPS of $3.56 for 2005 and $3.75 for 2006. He has a $55 price target on the stock.