Kash Rangan, an analyst at Goldman Sachs, predicts strong results because “conversations point to demand strength while [comparisons] for commercial cloud, Azure, and commercial bookings are easier.” Microsoft is rated a buy by Goldman, with a price target of $340 per share.
According to a Refinitiv poll, analysts expect Microsoft to report earnings of $1.91 per share on revenue of $44.102 billion. This would represent a more than 30 percent increase in earnings and a 16 percent increase in revenue year over year. Microsoft’s revenue increased 19 percent year on year in the fourth quarter, the most since 2018.
“Despite the aforementioned headwinds to FY22 EPS growth, we note that the company is well positioned to capitalize on DX [app interfaces] and cloud adoption, and commercial cloud continues to grow as a percentage of the mix,” Rangan added.
Fundamental checks for Microsoft “remain positive,” according to UBS analyst Karl Keirstead, and “investor estimates remain reasonable,” but the 20% rally since mid-May makes the set-up for the report “tougher.” Microsoft’s stock is expected to rise nearly 30% in 2021.
Analysts are also looking ahead to full-year 2022 guidance as IT spending recovers.
Microsoft is one of Wall Street’s most popular stocks. According to FactSet, 35 of the 38 analysts who cover the company have a buy rating on the stock. Only three analysts have assigned a hold rating to the stock.
Consider what the rest of Wall Street said ahead of the report:
Citi recommends a buy with a price target of $378.
Overall, we continue to favor MSFT as the best megacap software stock, with multiple levers for long-term DD growth at scale and significant room to run with enterprise cloud migrations.”
Bank of America: Buy, $325 price target
“We believe Azure is well-positioned for multi-year share gains in the $109 billion IaaS/PaaS [cloud] market, with partner feedback on more mission-critical workloads (such as ERP hosting and vertical cloud offerings) migrating to the platform likely driving continued 50 percent+ Azure growth.”
UBS recommends a buy with a price target of $300.
“The bottom line is that, while persistent PC chip shortages and ‘cooling’ PC demand pose a risk that Microsoft’s tone about the Windows segment softens on the call, we conclude that it doesn’t sound like a crisis and that, while market conditions may take some zing out of Windows growth, the likelihood of a material miss appears relatively low.”
Rosenblatt Securities recommends a buy with a price target of $333.
“As we enter FY22, we believe Microsoft’s fundamentals are as strong as they have ever been. We believe Azure will continue to gain market share, PC demand will remain strong, and Office, Teams, and Dynamics will likely grow in the double digits.”
Stifel: Buy, target price of $305
“We expect MSFT to broadly outperform Street expectations as the company’s commercial business lines, particularly Office 365 and Azure, continue to perform well. Looking ahead to FY22, we believe Microsoft is well positioned to: 1) deliver low teens revenue growth despite increasingly difficult comparisons, 2) maintain its current GM profile (69 percent ) despite continued growth in Azure’s mix of the business, and 3) deliver upside to current Street FCF estimates.”
Morgan Stanley is overweight, with a price target of $300.
“Channel work and our CIO survey indicate that momentum is building across the Cloud, Hybrid, and On-premise portfolios, which should power a strong fourth quarter. While investors seek assurances that margin expansion will continue into FY22, our model predicts long-term high-teens EPS growth and share price appreciation.”
Cowen: Outperform, $310 price target
“We see potential for re-acceleration on the heels of our bullish survey and third-party data pointing to accelerating IaaS market growth, which should be positive for the stock.” We expect FY22 revenue to rise, though margin guidance may be revised.”
Barclays: Overweight, $325 price target
“MSFT will see easy comps in a number of its major revenue areas this quarter. Office was only up 5.1 percent in Q4 last year (compared to double-digit growth in all quarters), LinkedIn was only up 10 percent (compared to over 20 percent growth in all other quarters), and Server ex Azure was only up 3.7 percent due to transaction business weakness. To put it another way, Microsoft should be able to deliver healthy growth this quarter.”
Jefferies: Buy, $335 price target
“F4Q expectations are achievable, thanks to MSFT‘s diverse portfolio, which includes Azure and Teams, which drive upselling. Key items to keep an eye on are FY22 margin pressure, elevated expectations, and more information on recent M&A and broader aspirations.”