What to Expect When Microsoft Reports After the Close

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Microsoft Corp. (NASDAQ: MSFT) is set to release its fiscal second-quarter earnings report after the markets close on Wednesday. The consensus estimates from Thomson Reuters are $0.86 in earnings per share (EPS) and $28.39 billion in revenue. In the same period of last year, it said it had EPS of $0.80 and $26.07 billion in revenue.

Credit Suisse’s Michael Nemeroff took a look at Microsoft ahead of the earnings report and sees Microsoft’s cloud momentum continuing at least through 2018. He also outlines what options Microsoft has for a large repatriation of cash. As seen after Apple’s repatriation announcement, Microsoft is one of the key players among 16 companies hoarding $1 trillion in cash.

The brokerage firm recently issued one of the most aggressive targets for Microsoft on Wall Street, with a price target of $115 up from its previous target of $95.

After a new proprietary survey, cloud dominance has Amazon Web Services (AWS) and Microsoft’s Azure now named as the preferred vendors by 81% of those surveyed. That’s up from 72% just six months ago and 70% a year earlier. Additionally, 47% of those surveyed have adopted Office 365 and 35% have adopted Windows 10. Another 37% of those surveyed plan to upgrade to Office 365. Over 50% of the responses indicated that they would upgrade to the next Office 365 subscription pricing tier for better features and products.

On the dominance of the cloud, Credit Suisse’s report said:

Our new, proprietary survey data gives us increased confidence that growth in Azure should remain robust over the next several quarters, at least. … We continue to expect Azure to gain market share in the IaaS/PaaS markets due to its competitive differentiators (i.e., hybrid-cloud platform, enterprise-grade capabilities, and hyperscale infrastructure) and market/product positioning (i.e., open ecosystem, interoperability, and enterprise edge/IoT).

As far as what Microsoft could do with its cash, the firm estimates that roughly $132 billion is held by foreign subsidiaries. That would be $112 billion after taxes. Nemeroff noted that Microsoft could issue a one-time special dividend of $14 per share. A payment that large was considered unlikely, but the combination of a smaller one-time dividend of $6 to $9 per share and an increase in share buybacks looks more likely.

A few other analysts weighed in on Microsoft prior to the report as well:

  • KeyCorp has a Buy rating with a $106 price target.
  • BMO Capital Markets has an Outperform rating with a $100 target.
  • JPMorgan has a Neutral rating and an $87 price target.
  • Barclays has an Overweight rating and its price target is $100.
  • Nomura has a Buy rating with a $102 price target.
  • Goldman Sachs has a Buy rating with a $100 target price.
  • Morgan Stanley also has a Buy rating with a $100 price target.
  • Oppenheimer has an Outperform rating and a $115 target.

Excluding Wednesday’s move, Microsoft was a little ahead of the broad markets with its stock up over 8% year to date. Over the past 52 weeks, the stock is up about 42%.

Shares of Microsoft were last seen up about 1.7% at $94.35, with a consensus analyst price target of $98.55 and a 52-week range of $62.75 to $95.45.