On July 21st Microsoft Corporation will announce its fourth quarter earnings and it is expected that earnings will increase 8%, improving from last quarter’s 9% drop.
Analyst Keirstead is focused on the company’s move to push more cloud services and he is consciously factoring in the current weak state of the PC market. Keirstead noted, “MSFT’s messaging at the partner event was all about empowering its tens of thousands of partners and resellers to sell more cloud subscription services. While “Commercial Cloud” revenues are only 7% of MSFT’s current mix, this transition is having an out-sized impact on Street sentiment. Key takes were that MSFT is trying to bundle far more cloud services around Office 365, motivate its army of partners (largely through financial incentives) to push cloud services and to drive actual deployment and usage of Office 365, which is tracking well below sold seats (MSFT is now compensating partners/resellers on usage).”
Keirstead added, “We conclude that the weak PC market is largely in the stock, the cloud transition story is playing out successfully and will lift sentiment for some time and that MSFT’s valuation multiples will appear more reasonable to the skeptics as EPS growth recovers in FY16.”
Analyst Frederick Grieb of Nomura Holdings, also reiterated a Buy rating on the stock with a $55 price target. Grieb is also aware of the weak PC market and he as accounting for Windows 10. He argued, “Despite weak PC sales and Revenue and EPS estimates that are set to fall due to new accounting for the Windows business, we remain positive on Microsoft. We believe the market is well aware of the impact from weak PC sales and the new accounting for Windows 10, which results in greater revenue deferrals, but will have no impact to the cash flows of the business.”
Based on the 20 analyst ratings detected by TipRanks.com, the current analyst consensus on Microsoft is Hold, with an average price target of $48.56.