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By: Brendan Gilmartin, VP Research & Content

Microsoft (MSFT) is scheduled to report 3Q 2013 earnings after the close of trading on Thursday, April 18. Results are typically reported between 4:05 p.m. and 4:15 p.m. EST with a conference call to follow at 5:30 p.m. Aside from the underlying shares, the technology related ETFs (PowerShares (QQQ)/SPDR Technology ETF (XLK)) may also move off the Microsoft report, along with the index futures, provided the results precede the CME scheduled maintenance shutdown at 4:15 p.m.

Outliers & Strategy

For the 3Q 2013 period, the EPS estimate is $0.68 (Source: Yahoo! Finance) with a range of $0.64 to $0.73, on revenue of $20.66 bln. The high number on the Street is $21.65 bln.

Microsoft has not provided earnings or revenue guidance since its 1Q 2009 earnings release.

The options market is currently pricing in a nearly 4% move off earnings when Microsoft reports earnings after the close Thursday.

Recent News

  • 04/16: Morgan Stanley Analyst Keith Weiss took over the firm's coverage on Microsoft and initiated with an Overweight rating and a $36 price target, arguing that the shares appear cheap, despite weak PC projections, according to a report on Barron's. Positive catalysts include new software for cloud-computing, a new version of the X-Box, and the Servers & Tools segment.
  • 04/11: Despite a weak report on PC shipments, a report in Barron's suggested Microsoft shares appear attractive at these levels. The report positively highlight's the company's 3% dividend, corporate client list, new product launches, and free cash flow.
  • 04/11: According to a report on Barron's, Goldman Sachs downgraded Microsoft from Neutral to Sell, following disappointing PC shipment reports from Gartner and IDC. In the same report, Rick Sherlund of Nomura Securities cut Microsoft.
  • 04/10: International Data Corp. reported that worldwide PC shipments dropped 13.9% y/y in the 1Q period to $76.3 million units, versus estimates for a decline of just 7.7%. The decline was the steepest since IDC started tracking the results in 1994 and partially attributed to a weak reception of Windows 8, consumer spending on mobile devices, and lack of innovation.

Technical Review

Microsoft shares have been meandering in a narrow trading range over the past couple months between $26.50 and $27.50. More recently the shares nudged up against the high end of that range - a key resistance area. A move through $27.50 could set up a run back toward the 200-Day SMA near $29.00 if results surprise to the upside. Conversely, shares could easily drop to the recent lows at $26.50 if results fall shy of consensus. (Chart courtesy of StockCharts.com)

Summary

Microsoft shares have been climbing steadily since mid-December, as a suite of new product offerings, including expansion of the Xbox line, the Surface tablet, and a solid dividend yield (3.00%) are luring buyers. Microsoft is also making strides in the cloud-computing and Servers & Tools segments, while low valuation (9.35x earnings) is helping to overshadow reports of a dismal reception of Windows 8 and sluggish PC sales from Gartner and IDC. Given the more uncertain backdrop facing Microsoft, the options market is pricing in a higher degree of volatility - setting the stage for an interesting earnings release. While the profit picture will take center stage, keep an eye out for any plans with its sizable cash holdings.

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Source: Investors Await Key Earnings Release From Microsoft Amid Slumping PC Shipments