) is set to report second quarter of fiscal 2013 results on Jan
24. Last quarter, it posted a -7.02% negative surprise. Let's see
how things are shaping up for this announcement.
Growth Factors this Past Quarter
Microsoft's sales growth rates in the fiscal first quarter of
2013 were lower than the fourth quarter as well as the year-ago
period due to delay in purchases ahead of the Windows 8 release
in Oct. Lower Windows and Office sales also hurt results in the
quarter, which can be attributed to weak PC sales.
The quarter was also weak for Microsoft in terms of margin
expansion. We believe that unfavorable mix and increased
expenditure on the launch of various new products will continue
to hurt margins.
Just like the PC makers, Microsoft is battling the slump in PC
sales caused by the sluggish economy. In addition, tablets from
) have been cannibalizing PC market sales, leading to further
deterioration in its core market. We believe that Microsoft will
see notable success this year only if PC sales start to grow
again at normal rates or the company grabs opportunities in the
cloud computing field. To compete in the growing tablet space,
the company has come out with its own offering - the Surface
tablet. Reception for the company's Surface RT tablet was
relatively lukewarm, despite widespread praise for the company on
the design and build-quality fronts. Importantly, the more
capable tablet offering from Microsoft, the Surface Pro, has yet
to come out.
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 (Read:
Zacks Earnings ESP: A Better Method
) and a Zacks Rank #1, #2 or #3 for this to happen. That is not
the case here as you will see below.
The Most Accurate estimate stands at $0.74 while the Zacks
Consensus Estimate is higher at $0.75. That is a difference of
Zacks Rank #4 (Sell):
Microsoft's Zacks Rank #4 (Sell) lowers the predictive
power of ESP because the Zacks Rank #4 when combined with a
negative ESP makes surprise prediction difficult. We caution
against stocks with Zacks Ranks #4 and #5 (Sell rated stocks)
going into the earnings announcement, given the stock's negative
estimate revisions momentum.
Other Stocks to Consider
Here are some other companies you may want to consider as our
model shows they have the right combination of elements to post
an earnings beat this quarter:
), with Earnings ESP of 14.8% and Zacks Rank #1 (Strong Buy) and
), with Earnings ESP of 3.6% and Zacks Rank #2 (Buy) remain well
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