What The Buy Side Is Expecting From Microsoft

| About: Microsoft Corporation (MSFT)

Microsoft Corp. (NASDAQ:MSFT) is set to report FQ2 2014 earnings after the market closes on Thursday, January 23. Microsoft has been looking to replace CEO Steve Ballmer since August, when he announced his intention to retire. The uncertainty surrounding the direction for Microsoft's future has been a key question for investors.

On the positive side, Microsoft has continued to do well on its core businesses, Windows and MS Office. However, Office has come under fire recently by competition from Google (NASDAQ:GOOG) Drive. The Office suite and Windows operating systems have dominated the PC industry for what feels like forever. Additionally, Microsoft has tried to expand into new markets with its search engine Bing, its Windows Mobile operating system, as well as the recently released game console Xbox One. Here is what investors are expecting Microsoft to report Thursday afternoon.

The information below is derived from data submitted to the Estimize.com platform by a set of Buy Side and Independent analyst contributors.image

(Click Here to see All Estimates for Microsoft)

The current Wall Street consensus expectation is for Microsoft to report 67c EPS and $23.504B revenue while the current Estimize.com consensus from 50 Buy Side and Independent contributing analysts is 69c EPS and $23.605B revenue. This quarter the buy-side as represented by the Estimize.com community is expecting Microsoft to beat the Wall Street consensus on both profit and revenue.

The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case we are seeing a larger than usual differential between the 2 groups' forecasts.

Over the past 6 quarters the earnings forecast from Estimize.com has been more accurate than Wall Street 5 times. By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non professional investors, Estimize has created a data set that is up to 69.5% more accurate than Wall Street, but more importantly it does a better job of representing the market's actual expectations. It has been confirmed by an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus. image

The distribution of estimates published by analysts on Estimize range from 65c to 75c EPS and $22.984B to $25.000B in revenues. This quarter we're seeing a moderate distribution of estimates compared to previous quarters.

The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A larger distribution of estimates signaling the potential for greater volatility post earnings, a smaller vice versa.image

The EPS consensus from both Estimize and Wall Street has fallen throughout the quarter. The Wall Street EPS consensus has dropped from 77c to 67c, while the Estimize consensus has fallen from 76c to 69c. The revenue consensus from the two groups have been moving in opposite directions, but they have been converging. The Wall Street consensus has increased from $23.102B to $23.504B while the Estimize consensus has decreased from $23.693B to $23.605B. image

The analyst with the highest estimate confidence rating this quarter is WallStreetBean who projects 69c EPS and $23.600B in revenue. WallStreetBean has been a member for 2 years and in the Winter 2014 season, WallStreetBean is currently ranked as the 17th best analyst and is ranked 9th overall among over 3,475 contributing analysts. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case the highest rated analyst has given an extremely similar forecast to the Estimize consensus.

This quarter the consensus from the Estimize.com community is that Microsoft will beat the Street on both the top and bottom line. The real story today, however, could be whether or not Microsoft will announce an end to their CEO search. If a new head of the company is unveiled in this afternoon's earnings conference, that could be the dominating story.

Disclosure: No positions.