In a move which seemed to catch Wall Street off guard on Thursday, Microsoft (MSFT) announced downward revisions to its FQ4 (June quarter) guidance. The company said foreign exchange rates were the culprit, given the dollar’s strength against other currencies – namely the British pound, euro, and yen.
Russia’s invasion of Ukraine, in tandem with a weakening economy in Europe and Asia, have propelled the US dollar to new highs against other currencies this century. In historically tumultuous times, the US dollar has been considered a safe place to park money.
The company reduced its revenue forecast from the range between $52.40 billion to $53.2 billion to between $51.94 billion and $52.74 billion. Earnings per share are now expected to come in between $2.24 to $2.32 compared to the prior $2.28 to $2.35 range. Before the adjustments, Street had revenue coming in at $52.87 billion and EPS at $2.33.
Assessing Microsoft’s move, Mizuho analyst Gregg Moskowitz thinks a couple of points should be kept in mind.
First, although since around mid-April, the major currencies (EUR, GBP, JPY) have “further weakened” against the USD, the delta has been “modest” – at roughly 1-2%. Additionally, Moskowitz notes that Microsoft’s earlier guidance factored in a beginning of May end to the Covid-led disruptions in China, while these were actually ongoing until the end of the month.
“As a result,” said the 5-star analyst, “and given a higher degree of macro uncertainty, we believe it’s too soon to say that the F4Q numbers have been derisked.” Accordingly, Moskowitz has now also reduced revenue and EPS estimates for F4Q and FY23.
However, the changes do little to alter Moskowitz’ long-term thesis. “We believe that MSFT’s fundamentals remain intact, and we remain confident that growth opportunities over the medium-term and beyond are greater than many realize, and the co. is positioning for materially greater success in cloud,” the analyst went on to say.
All in all, there’s no change to Moskowitz’ Buy rating or $350 price target, which represents upside of 27% from current levels. (To watch Moskowitz’s track record, click here)
The rest of the Street almost unanimously agrees. One analyst plays the contrarian, offering a Hold rating, yet all 23 other analyst reviews are positive, making the consensus view here a Strong Buy. The average target is a touch above Moskowitz’s; at $355.92, the figure suggests shares have room for ~32% growth in the year ahead. (See Microsoft stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
