Microsoft (MSFT) reports earnings for its fiscal third quarter ended March after the close of trading on April 24. A lot of things will happen between now and then, including earnings from Yahoo (YHOO) several days earlier; and there always remains the possibility of new developments in the company’s pending $31-a-share bid for YHOO. Nonetheless, some analysts think MSFT is headed for a strong quarter - one which potentially could spur the stock higher.
Brent Thill, software analyst at Citigroup, this morning advised investors to buy MSFT shares ahead of the earnings announcement. He notes that the stock is off 11% since it announced its Yahoo bid, versus a 2% drop in the Nasdaq Composite over the same period. Thill thinks that has set the stock up to outperform: He says the company is likely to beat its guidance in Q3, as it did in each of the last two quarters.
Thill notes that in each of the last two quarters, the stock rallied after results beat expectations on piracy reduction and the strength of its new products cycle. “There are not 1 or 2 quarter drivers,” he says. Thill expects the company to similarly beat estimates for Q3 as well as Q4 driven by the same factors. He also notes that the company should be aided by strong March quarter PC sales, as detailed yesterday by both IDC and Gartner.
Note that Microsoft had forecast 9%-11% PC growth; Gartner says Q1 global PC units actually grew 12.3%, and IDC reports units grew 14.6%.
Thill maintains a Buy rating and $41 target price on the stock. “We suggest investors take advantage of this temporary M&A induced dislocation between stock valuation and fundamentals and buy MSFT before investor attention returns to the strength of it score business,” he writes.
