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Microsoft Earnings: Owning The Cloud At A GARP Valuation

Brian Gilmartin, CFA profile picture
Brian Gilmartin, CFA


  • The recent layoffs and departure of the CIO only mean that the cloud team's importance will continue to grow.
  • Like Oracle, Microsoft is transitioning from the legacy desktop and Windows business to the public cloud via Azure.
  • The installed PC base is a huge competitive advantage.
  • Microsoft retains the #2 market position in cloud behind Amazon Web Services.

Microsoft (NASDAQ:MSFT) is scheduled to report its fiscal Q4 '17 financial results after the bell on July 20th, 2017, and consensus EPS estimates have actually improved a bit over the last few quarters.

However, the recent news of the 3,000 layoffs may be making investors nervous as Microsoft's stock is down about 5% from its all time high between $73 - $74 that was hit in early June, just before the Nasdaq and the PowerShares QQQ (QQQ) started their most recent correction.

Even Microsoft's CIO decided it was time to leave the firm with these latest layoffs per this Seeking Alpha article.

However for longer-term investors who aren't interested in day trading and can sit with individual stocks for longer periods of time, the recent weakness in Microsoft should represent a good buying opportunity.

Let's go to the numbers:

Q4 '17 (est) Q3 '17 Q2 '17 Q! '17
2019 EPS est $3.71 $3.67 $3.67 $3.56
2018 EPS est $3.32 $3.27 $3.26 $3.26
2017 EPS est $3.03 $2.98 $2.97 $2.94
2019 est EPS gro rt 12% 12% 13% 10%
2018 EPS est gro rt 10% 10% 10% 9%
2017 EPS est gro rt 9% 7% 6% 6%
2019 P/E 19(X) 19(X) 17(X) 16(X)
2018 P/E 21(X) 21(X) 19(X) 18(X)
2017 P/E 23(X) 23(X) 21(X) 19(X)
2019 est rev's ($'s bl's) $111.7 $111.6 $111.0 $106.2
2018 est rev's $103.7 $104.1 $103.8 $99.5
2017 est rev's $96.2 $96.6 $96.5 $93.8
2019 est rev gro rt 8% 7% 7% 7%
2018 est rev gro rt 8% 8% 8% 6%
2017 est rev gro rt 5% 5% 5%


Source: Thomson Reuters I/B/E/S estimates as of July 9th, 2017

Readers should note a few trends from a quick perusal of the numbers:

1) Forward EPS estimates have been steadily rising. Even with the

This article was written by

Brian Gilmartin, CFA profile picture
Brian Gilmartin, is a portfolio manager at Trinity Asset Management, a firm he founded in May, 1995, catering to individual investors and institutions that werent getting the attention and service deserved, from larger firms. Brian started in the business as a fixed-income / credit analyst, with a Chicago broker-dealer, and then worked at Stein Roe & Farnham in Chicago, from 1992 - 1995, before striking out on his own and managing equity and balanced accounts for clients. Brian has a BSBA (Finance) from Xavier University, Cincinnati, Ohio, (1982) and an MBA (Finance) from Loyola University, Chicago, January, 1985. The CFA was awarded in 1994. Brian has been fortunate enough to write for the TheStreet.com from 2000 to 2012, and then the WallStreet AllStars from August 2011, to Spring, 2012. Brian also wrote for Minyanville.com, and has been quoted in numerous publications including the Wall Street Journal.

Analyst’s Disclosure: I am/we are long MSFT, HD, AMZN. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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