Q3 Preview: Microsoft (MSFT) Investors Peer Through 'Windows' to Next OS

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Microsoft Corp. (Nasdaq: MSFT) shares are trading in negative territory Thursday heading into the tech and software giant's third-quarter 2012 report, expected out after the market closes.

Analysts currently see Microsoft posting earnings of 58 cents per share on revenue of $17.18 billion. The estimates compare with EPS of 61 cents and revs of $16.43 billion reported in the same period last year.

Shares of Microsoft gained 25.1 percent in the quarter and are 3.3 percent lower since. Microsoft's stock has traded within a range of $23.65 to $32.95 over the last year.

Investors might glance at Intel's (Nasdaq: INTC) quarterly numbers for a hint at what Microsoft might produce. Though Intel was strong on the top and bottom, margin compression had investors in limbo. For more color on Intel's quarter, click here .

Data from Bloomberg currently has 25 analysts at Buy, 13 with a Hold, and one at Sell on Microsoft. The Street's price target range is $27 to $39, with an average of $34.

Implied volatility is about 40 percent above the historical level on an annually calculated basis.

Analyst Comments

  • Goldman Sachs sees EPS of 56 cents and revs of $16.9 billion, with Windows revenue forecast at $300 million. Goldman noted recent IDC data pointed to potential upside for Microsoft's Windows report.

    With overall solid numbers expected into the end of the upgrade cycle, Goldman issued a little color for the future. On Windows 8, Goldman said the first year following the release will be key. In addition, the firm commented: "In our view, enterprise migration off WinXP ahead of the expiration for support in 2014, as well as migration off Vista, could be an important metric to monitor in CY12 and CY13. Our analysis suggests potential upside to PC unit forecasts over the next two years of about 15 mn as a result of enterprise upgrades (off an installed base of about 690mn business PCs)."

  • BGC Partners is modeling EPS of 61 cents and revs of $17.33 billion. Windows division revs should dip 2.5 percent to $4.3 billion, with gains expected in all other segments when compared with 2011.

    The firm likes the dominance of Microsoft's Kinect in melding user interfaces with computing. BGC said, "We expect that losses in the Online division remain below $500 million for the quarter, continuing the trend shown in the last two quarters. We also see more effective use of marketing spend, showing a result from the reorganization of that department."

    Finally, BGC believes Microsoft displays the ability for strong cost control leading to better cash flow. With a 40 percent gain in operating cash flow last quarter and guidance calling for just 5 - 6 percent of growth in operating expenses through 2012, it will be a metric eyed by investors.

  • Wells Fargo sees revs of $17.1 billion and EPS of 59 cents. Windows Division revs should fall 7.2 percent to $4.12 billion with Online Services seeing a 14.7 percent pop in revs to $743 million. The firm said, "Given recent industry analyst reports that indicate that PC shipments came in at nearly +2%, vs. our expectation for no growth, we believe that there could be some upside to revenue results in the WWL and MBD business units."
Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of their release. You can also check out Microsoft's past performance at Streetinsider's Microsoft's Income Statement .

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

This article appears in: Investing , Stocks
Referenced Symbols: INTC , MSFT

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