Stock of the day 19/07/2016 – Microsoft Corp

Hovering near all-time highs can Microsoft seize its window of opportunity with its Q4 figures on Tuesday?

Having closed 2015 at a fresh peak of $56.85 it was understandably difficult for Microsoft to maintain momentum at the open of 2016, especially given the turbulence that greeted the start of the New Year. Yet after hitting a 3 and a half month low of $48.20 at the end of the first week of February the stock soon recovered, effectively matching its all-time highs by the middle of April. A sharp, earnings-inspired fall then took it away from that level, with the stock bouncing between $48 and $53 for most of May and June. Microsoft now sits at a current trading price of $54.13 (IT-Finance.com, 19/07/2016).

Much of Microsoft’s movement this year has been caused by a pair of drastically different earnings releases. At the end of January investors were buoyed by the company’s second quarter report; Microsoft posted $25.7 billion in revenue (down 2% year-on-year) alongside earnings per share of 78 cents, better than the $25.26 billion and 71 cents expected respectively. The thrust of the company’s Q2 growth came from its Azure cloud division, a key rival of Amazon’s Web Services giant, which saw 127% surge in revenue year-on-year. 


(Source: IT-Finance.com 19/07/2016)

Flash forward to mid-April and having struck those aforementioned all-time highs once again Microsoft was in for a dramatic drop, plunging just shy of 10% in the space of a week following its Q3 figures. EPS came in at 62 cents to the 64 cents forecast, while revenue barely budged year-on-year at $22.1 billion. The killer was the company’s limp forward guidance, issuing a Q4 revenue target between $21.7 billion and $22.4 billion against the $23.1 billion analysts were expecting. 

Of course none of this is what Microsoft’s 2016 will be remembered for; no, that honour goes to the its moment of M&A madness, with the company purchasing business-based social network LinkedIn for $26.2 billion. That figure value each of LinkedIn’s profiles at $60 a pop, a price that caused a lot of scepticism when the deal was revealed. It will be interesting, then, to see what kind of mentioned LinkedIn gets on Tuesday evening. 

In terms of those fourth quarter figures after the closing bell on Tuesday analysts are expecting Microsoft to post a 3% fall in earnings per share (the first drop in EPS in 5 quarters) to 58 cents alongside revenue of $22.14 billion, a slight fall year-on-year. 

Microsoft Corp has a consensus rating of ‘Buy’ with an average target price of $58.26.