By Craig Bowles
Microsoft Corp. (NASDAQ:MSFT) is slated to report 3Q2014 earnings after the bell on Thursday, April 24th. The earnings release is expected at approximately 4:00 p.m. EST, with a conference call to follow at 5:30 p.m. that is webcast through Microsoft Investor Relations. A member of the Dow Jones Industrial Average, Microsoft has significant market influence and the potential to impact the broader market gauges.
Outliers & Strategy
- Adjusted Earnings Per Share and Non-GAAP Earnings Per Share: The values for both measures are typically the same and are comparable to consensus estimates. The current Street estimate is $0.63 (range $0.59 to $0.71) (Source: Yahoo! Finance).
- Revenues: Analysts see an increase of 10.4% y/y to $20.39 bln (range $20.21 bln to $20.71 bln).
- Insider selling continues, with the last six months having sold 40 mln shares. The company announced a new $40 bln stock buyback program after the old one expired this past September. Microsoft's average price paid for each share repurchased has been between $25 and $30 for the last 10 fiscal years. The company has purchased as little as $3.3 bln in 2004 and as much as $27.1 bln in 2007. 2012 and 2013 saw relatively low repurchases of $4 bln and $4.6 bln, respectively.
- Microsoft is compared to other software and service companies, with quarterly results possibly impacting Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG) and Oracle (NYSE:ORCL).
- Microsoft shares have shown a 1-day average price change on earnings of 4.04%. Options are pricing in an implied move of 3.50% off earnings.
- 04/18: Microsoft's brand new CEO needs to do more, according to a post by Time Magazine.
- 04/15: Microsoft's Xbox One sales topped 5 mln, compared to Sony's 7 mln PlayStation 4 units. Microsoft could close the gap, but needs to add value, as raw power isn't enough to stop users from migrating to Sony's online network, according to a post on TheMotleyFool.com.
- 04/14: Windows Phone 8.1 will be released in the coming months, but it's only good and not great, according to a post on WallStCheatSheet.com.
- 04/14: 44% of businesses are still using Windows XP, according to a post by Business Insider.
- 04/14: Deutsche Bank downgraded Microsoft to Hold from Buy, with a price target of $42.00 mostly due to valuation, while pointing out that too many catalysts are now in the rearview mirror, according to a post by StreetInsider.com.
- 04/13: Microsoft's new platform and services strategy makes sense, but will come down to whether the company can execute, according to a post by Techcrunch.com.
Microsoft is one of several large companies that have moved higher after being basically flat for a decade. This breakout from consolidation has resulted in a bumpy uptrend since 2011, supported by the general market. Recent consolidation is around $40.00, where the 20-day MA is located. Should earnings disappoint, various areas of support can be found down to $35.50. Microsoft shares are at an important technical point that puts increased importance on Thursday. Upside potential can be large after multiple years of consolidation. (Chart courtesy of StockCharts.com)
Microsoft just hired a new CEO and renewed its large stock buyback program. Expectations for this quarter have been reduced from the $0.66 consensus of three months ago to $0.63. Microsoft has beaten EPS consensus three out of the last four quarters by 4c to 10c, so traders are relatively more optimistic than analysts, and the company probably needs to produce better than an EPS $0.67 on revenue of $20.833 bln for an upside reaction. The stock has limited resistance above $40.50, as each new price high is a decade high, as well.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.