North America

Earnings Preview: Microsoft Q1 2019 (MSFT)

By: Craig Bowles

Overview

Microsoft, Corp. (MSFT) is slated to report 1Q2019 earnings after the close on Wednesday, October 24th. The earnings release is expected a couple of minutes after 4:00 p.m. ET with a conference call to follow at 5:30 p.m. that is webcast through Microsoft Investor Relations. A member of the Dow Jones Industrial Average, Microsoft has significant market influence and the potential to impact the broader market gauges.

Outliers & Strategy

Key measures:

  • Adjusted Earnings Per Share (EPS) / Non-GAAP Earnings Per Share (EPS): (If unavailable, GAAP Earnings Per Share (EPS) would be comparable to consensus.) The Street estimate is $0.96 (range $0.93 to $1.04). (Source: Yahoo! Finance) Consensus was $0.91 three months ago.
  • Revenues: Company guidance from the conf call was $27.35 bln to $28.05 bln. Analysts expect an increase of 13.7% y/y to $27.90 bln.
  • Price/Earnings of 51.4 compared to a 5-year average of 23.8; P/Book 10.2 compared to a 5-year average of 5.1, P/Sales 7.7 compared to a 5-year average of 4.7, and P/Cash Flow 19.5 compared to a 5-year average of 13.7. Dividend yield of 1.5% compared to a 5-year average of 2.3%.
  • Analysts view Microsoft with 31 Buy, 2 Hold, and 1 Sell ratings. (source: MarketBeat.com)
  • Insider bought 206,488 shares during the last three months but sold a net 5,812 shares in the past year. (source: NASDAQ.com) The company approved another $40 bln stock buyback program that began in 2017 that should run for another 3-4 years.
  • Microsoft is compared to other software and service companies with quarterly results possibly impacting Apple (AAPL), Google (GOOGL) and Oracle (ORCL).
  • Microsoft shares have shown a 1-day average price change on earnings of 2.25%. Options are pricing in an implied move of 3.25% off earnings. 

Recent News

  • 10/15: Microsoft staff allegedly pen open letter urging firm to drop bid for US government cloud deal, according to a post on computerweekly.com.
  • 10/12: Macquarie upgraded Microsoft to Outperform from Neutral while citing continued traction for Azure. Evercore ISI noted videogaming as a “wild card,” according to a post on Barron’s.com.
  • 10/08: Microsoft’s LinkedIn spent over $400 million on Glint, which helps companies understand if their workers are happy, according to a post on CNBC.com.
  • 10/03: At a small event in New York, Microsoft unveiled a range of new devices that felt very much like an intimate version of an Apple event. When it comes to computer design, Microsoft seems to have taken Apple’s crown, according to a post on Quartz.com.
  • 9/08: Morgan Stanley believes cloud usage will more than double in the next two years benefitting companies such as Microsoft, according to a post on Businessinsider.com.
  • 8/30: Microsoft will start requiring partners and suppliers to offer paid family leave, and it will help cover the costs, according to a post on CNBC.com.
  • 8/27: Microsoft is now selling the Xbox One S and Xbox One X through monthly installment plans, according to a post on CNBC.com.
  • 8/11: Microsoft CEO Satya Nadella sold $35.9 million worth (30%) of his shares in the company. This move marks the beginning of a trading plan, whereby Nadella will regularly sell portions of his Microsoft equity on a fixed schedule, according to a post on Businessinsider.com.

Summary

CEO Satya Nadella has changed the culture at Microsoft resulting in solid product refinements, a soon to be released Windows software, and products to include a myriad of laptops, tablets, desktops, and new pair of wireless noise-canceling headphones. Microsoft stock has led the overall market higher since mid-2016 and made new highs in 2018 while the general market struggled, so being comparable to market performance the last month still has the stock well above the 200-day moving average. Increased revenue expectations have driven the stock higher despite valuations appearing stretched. Analysts remain bullishness. Insiders did some buying since last quarter. Over the past year, Microsoft has beaten analyst consensus by an average of 9c the past four quarters. Estimize consensus for an EPS (or adjusted EPS if available) of $1.00 on revenue of $29.403 bln compares to analyst consensus of $0.96 on revenue of $27.90 bln.

 

DISCLAIMER:  By using this report, you acknowledge that Selerity, Inc. is in no way liable for losses or gains arising out of commentary, analysis, and or data in this report. Your investment decisions and recommendations are made entirely at your discretion. Selerity does not own securities in companies that they write about, is not an investment adviser, and the content contained herein is not an endorsement to buy or sell any securities. No content published as part of this report constitutes a recommendation that any particular investment, security, portfolio of securities, transaction or investment strategy is suitable for any specific person.