Microsoft Corporation (NASDAQ:MSFT) has changed a lot since the days of ubiquitous desktop systems, but Bill Gates’ brainchild still accounts for a hefty 6% of the Nasdaq and is only dwarfed by the mighty Apple Inc. (NASDAQ:AAPL) and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL).
If management sticks to the pattern, the numbers themselves will probably blow through Wall Street’s estimates. Earnings anywhere above 86 cents a share is all it takes to satisfy the whispers, which usually circulate a little on the low side.
I wouldn’t be surprised to see MSFT report as much as 96 cents a share, and even a stumble is unlikely to miss by more than 2 cents. Add it all up and the risk of a real disappointment-driven retreat Thursday morning is fairly low.
Management has one of the best vantage points on the enterprise IT landscape (cloud computing is now about 25% of the company’s business) and their outlook tends to lag reality — they’d rather err on the side of caution than set themselves an impossible goal. And Wall Street isn’t going to get in their way. Consensus adjusted to meet guidance three months ago and it hasn’t budged since.
Fully Valued or Room for Growth in MSFT Stock?
The only real point of controversy is around how much investors should pay for even 1 cent per share in earnings.
Some still think of MSFT as a go-go growth stock and argue that it is worth up to 35X management’s full-year earnings guidance. Others say this company has gone as far as it can, deserving a multiple no higher than market weight.
I’m more in the middle. I think there’s opportunity here, and while management may not seize it in any particular quarter, when it happens, the trend will accelerate and the stock should follow.
All in all, MSFT has generally rewarded investors who took their seats before earnings and held on through the results. Over the past two years, shares edged up an average 2.7% in the five trading days ending in the initial post-earnings pop. This isn’t a huge typical return, but if you’ve been on the sidelines waiting for a dip, this is a solid entry point if you’re thinking about opening a position.
— Hillary Kramer
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Source: Investor Place