Can Microsoft (MSFT) Surprise this Earnings Season? - Analyst Blog


Microsoft Corp. ( MSFT ) is set to report fourth-quarter fiscal 2014 results on Jul 22. Last quarter, the company posted a 9.7% positive surprise. Let's see how things are shaping up for this announcement.

Factors to Consider this Past Quarter

Microsoft's third-quarter earnings of 68 cents beat the Zacks Consensus Estimate by 6 cents due to better gross margins and solid expense management. However, revenues of $20.40 billion were down sequentially.

Gross margins expanded sequentially due to the change in sales mix, which favored higher-margin products.

In the last quarter, the consumer side of the business was weaker, with the company seeing growth in tablets. We believe the company's recent restructuring, which includes trimming its workforce, will help Microsoft combat losses due to the persistent decline in worldwide PC sales and lower operating expenses.

Earnings Whispers?

Our proven model does not conclusively show that Microsoft will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP:   Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 60 cents. Hence, the difference is 0.00%.

Zacks Rank: Microsoft's Zacks Rank #3 (Hold) when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

You could consider other stocks with a positive Earnings ESP and a Zacks Rank #1, 2 or 3 such as:

Gentex Corp. ( GNTX ), with an Earnings ESP of +2.08% and a Zacks Rank #1 (Strong Buy).

Kirby Corporation ( KEX ), with an Earnings ESP of +3.08% and a Zacks Rank #1.

AmSurg Corp. ( AMSG ), with an Earnings ESP of +3.13% and a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: MSFT , AMSG , GNTX , KEX

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