Here's Why Microsoft (MSFT) Stock Looks like a Buy Ahead of Earnings

Microsoft MSFT is scheduled to release its quarterly financial results on Wednesday, January 30, along with the likes of Facebook FB, Alibaba BABA, Qualcomm QCOM, Tesla TSLA, and other heavy hitters. So, let’s see why Microsoft stock looks like a buy as we head into the meat of earnings season.

Overview

Microsoft has expanded its reach over the years beyond software and personal computing. Last quarter, MSFT captured roughly 15% of the cloud market to come in second behind Amazon AMZN and top IBM IBM, Google GOOGL, and Alibaba. The firm also saw its Xbox-driven gaming division soar 44% as its Netflix NFLX-style Xbox Game Pass grew.

Meanwhile, Microsoft plans to continue to expand its IoT segment and other future-looking divisions. The historic technology firm also made 15 acquisitions during the 2018 calendar year, which was highlighted by its $7.5 billion purchase of open-sourced software platform Github.

Shares of Microsoft have climbed nearly 13% since Christmas along with much of the rest of the market. Overall, MSFT is up roughly 15% over the last year, which outpaces the S&P 500’s 7% decline and its industry’s 11% drop. MSFT closed regular trading Thursday at $106.20 a share, which marked an 8.6% downturn from its 52-week high of $116.18 a share.

Q2 Fiscal 2019 Outlook

Moving on, our current Zacks Consensus Estimate calls for MSFT’s quarterly revenues to jump 12.3% to hit $32.45 billion. This would come on top of the year-ago quarter’s 12% surge, but fall short of last quarter’s 19% top-line expansion.

More specifically, the firm’s Productivity & Business Processes unit, which features Office, LinkedIn, and Dynamics CRM, is projected to see its revenues jump 12.8% from $8.953 billion to reach $10.096 billion, based on our current NFM consensus estimates. This division’s revenues climbed 19% in fiscal Q1.

Meanwhile, Microsoft’s closely watched Intelligent Cloud revenues are projected to jump 19% to touch $9.295 billion. Intelligent Cloud surged 24% last quarter and 15% in the year-ago period. MSFT’s largest business segment, More Personal Computing, is expected to see its revenues pop 7.5% to touch $13.086 billion. This would mark a downturn from last quarter’s 15% jump in the division that includes Windows.

At the bottom end of the income statement, MSFT’s adjusted quarterly earnings are expected to climb 13.5% to reach $1.09 per share. Last quarter, the firm’s adjusted EPS figure surged 36% to reach $1.14 a share.

Bottom Line

Microsoft is a Zacks Rank #2 (Buy) at the moment based, in large part, on its recent earnings estimate revision activity. Plus, MSFT is a dividend payer that looks ready for continued expansion as fellow tech giant Apple AAPL seems poised for a slowdown.

Microsoft is set to report its Q2 fiscal 2019 financial results after the closing bell on Wednesday, January 30. Make sure to check back here for our full analysis of Microsoft’s actual results.

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