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Microsoft Stock: All Eyes on Earnings This Evening
Stock Analysis & Ideas

Microsoft Stock: All Eyes on Earnings This Evening

Amidst an environment steeped in uncertainty and with the stock market exhibiting some wild behavior, Microsoft (MSFT) will step up to the earnings plate today after the bell.

After 2021’s excellent performance, MSFT shares have not been immune to January’s messy exhibition and the stock enters the earnings arena in almost unfamiliar territory; barely one month into the new year, the shares are down 13%.

Nevertheless, the poor performance is more a reflection of the current market than dwindling fortunes for the tech giant. In fact, heading into the F2Q22 print, Deutsche Bank’s Brad Zelnick expects “another strong result,” and notes the company is a model of “stability in choppy seas.”

“Microsoft remains uniquely positioned to facilitate the rapid shift to Digital with its cloud-based solutions for increasingly distributed modern enterprises,” the 5-star analyst said. “Our checks show no signs of this trend slowing in 2022 as we continue to believe we’re in the early stages of a generational opportunity with public cloud only ~20% penetrated vs. a nearly $600bn TAM.”

Led by “ongoing Azure momentum and M365 tailwinds,” Zelnick expects Microsoft to deliver revenue of $50.7 billion and adj. EPS of $2.28, just below the Street’s forecast of $50.9 billion and $2.32, respectively.

Zelnick anticipates “healthy” +46% YoY growth for Azure, although notes that due to tougher comps, this is a slight deceleration on the 50% growth seen in F1Q. The key debate centers around the “durability of growth,” although according to Zelnick’s checks, cloud adoption “continues at pace,” and the analyst anticipates FY22 will provide another year of more than 40% Azure growth.  

As for Microsoft 365, the analyst calls for 19% growth with “migration from on-prem, a lift to net new seat growth from SMB and Frontline workers, and ARPU growth from upward mix shift toward E5” all expected to help keep up momentum.

Summing up, the analyst says that against the “volatile current backdrop,” due to MSFT’s long “runway for growth,” current FCF yield of ~3% and diversified strategy, he is “comfortable” owning MSFT stock.

Accordingly, Zelnick rates MSFT a Buy along with a $390 price target. Shares could appreciate ~34%, should the analyst’s thesis play out in the coming months. (To watch Zelnick’s track record, click here)

Zelnick’s positive assessment is not unique by any means; barring one fence-sitter all 27 other recent reviews are positive, resulting in a Strong Buy consensus rating. The forecast calls for one-year gains of 26%, given the average price target clocks in at $372.92. (See Microsoft stock forecast on TipRanks)

To find good ideas for tech stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

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.

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