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Microsoft’s Results Are Next Week. Why Analysts Are Upbeat.

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Microsoft stock was 2.1% higher at $309.77 on Thursday morning, while the S&P 500 had gained 1.5%.
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While the world continues to debate the merits and implications of Microsoft ‘s bid for the videogame giant Activision Blizzard , investors’ attention is due to shift to the software company’s December quarter earnings report, due after the close on Wednesday.

Analysts are generally upbeat about the outlook, and estimates have ratcheted higher.

Wall Street is projecting revenue of $50.9 billion for its fiscal second quarter, with profits of $2.31 a share. That compares with the $51.05 billion in revenue Microsoft (ticker: MSFT) would bring in if the figures for the company’s various business segments come in at the top of the ranges Chief Financial Officer Amy Hood projected when the company reported its September quarter results.

She projected revenue for the Productivity and Business Processes segment, which includes Office and other applications, of between $15.7 billion and $15.95 billion. For the Intelligent Cloud segment, including Azure, she projected revenue of between $18.1 billion and $18.35 billion. And for the More Personal Computing segment, including Windows, Surface, and Xbox, Hood forecast revenue of between $16.35 billion and $16.75 billion, despite a decline in Surface hardware due to component shortages and a moderation of growth in the Search and News ad business.

For the March quarter, the Street is projecting $48.3 billion in revenue and profits of $2.17 a share.

Citi analyst Tyler Radke said in a research note Thursday that he sees “a modestly positive set-up” for next week’s report. Based on discussions and surveys of partners and resellers, he sees strong renewals by enterprise customers, with particular strength in Office 365 and Dynamics, although he noted that Azure revenue growth could moderate on a tough comparison and seasonally weaker bookings last quarter.

Radke said he trimmed his estimates for the fiscal year for the More Personal Computing segment due to expected softening in commercial PC sales. As a result, he now expects profits for the June 2022 fiscal year of $9.69 a share, down from his previous call of $9.72. Radke kept his Buy rating on the stock, but lowered his target for the price to $376, from $407.

Thursday morning, the stock was 2.1% higher at $309.77, while the S&P 50 0 had gained 1.5%.

BofA Global Research analyst Brad Sills likewise repeated a Buy rating on Microsoft shares, while reiterating his $365 price target. He said there is potential for the company to beat his December quarter revenue forecast of $50.7 billion by 1% to 2% on “sustained strength across the key franchises.”

Sills thinks Azure growth could be as high as 49% in the quarter, above his own forecast of 46%. And he thinks revenue from More Personal Computing in the quarter could be $250 million above his own forecast of $16.6 billion, based on higher PC shipments. Sills says that with the company likely to post sustained growth in free cash flow in the mid-to-high teens, the stock remains a top pick.

Cowen analyst Derrick Wood maintained his Outperform rating and $360 price target. Like Sills, he said his forecast for Azure’s growth might be too low, at 45%. In a note previewing the quarter, he said he sees strong demand for Office 365 ahead of price increases, and that Microsoft’s financial guidance for the March quarter is likely to be slightly higher than Wall Street expects.

Azure will remain the company’s main growth driver going forward, while Office 365 has been a major success and is likely the world’s largest software-as-a-service business, Wood said. 

Write to Eric J. Savitz at [email protected]

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