Q4 Preview: Microsoft (MSFT) Exposed to Downside EPS Risk Given PC Data, Facebook Sale


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Shares of Microsoft (Nasdaq: MSFT) are trading higher Thursday heading into the software giant's fourth-quarter 2012 earnings announcement, expected out after the market closes.

Microsoft will hold a conference call at 2:30pm PDT Thursday. To go to Microsoft's IR website for the call, click here .

Currently, the Street is looking for EPS consolidation of 10 percent to 62 cents, from 69 cents reported in the same period last year. Revs should move about 4.4 percent higher to $18.14 billion.

Estimize consensus numbers call for EPS of 64 cents on revs of $18.36 billion.

MKM Partners release a note earlier highlighting a few technicals on Microsoft stock. The firm noted how Microsoft tested and bounced off of its 200-day moving average. In addition, MKM noted a positive divergence for Microsoft in the daily MACD histogram, reflecting improvement in the short-term momentum. Microsoft also has room to short-term overbought territory, according to daily stochastic data, setting shares up for positive near-term momentum.

Analyst Views
Data from Bloomberg has 28 analysts with a Buy rating on Microsoft, 11 at Neutral, and one with a Sell.

The Street's price target consensus is $36, ranging from $30 to $40. Over the last 52-weeks, Microsoft has traded within a range of $23.79 to $32.95.

Volatility for Microsoft is up just over 6 percent from Wednesday's close and about 1 percentage point over its trailing annual daily average.

Analyst Comments

  • Goldman Sachs sees EPS of 63 cents and revenue of $18.2 billion for the venerable software maker. Into the tape, Goldman sees potential downside of 1 cent in earnings and $250 million in sales following IDC PC data. Given macro and Goldman's mixed channel checks, the firm believes the Street's revenue consensus might be a little aggressive.

    Overall, excluding a benefit from the recent sale of Facebook (Nasdaq: FB) shares and hardware checks in Asia showing some excess channel inventory, Goldman thinks its more likely that clean EPS will miss views.

    For Windows and Windows Live Goldman is looking at a 9 percent drop to $4.3 billion, a little richer than the consensus at $4.2 billion. The call was based on aforementioned channel checks as well as a $500 million deferral related to the Windows 8 upgrade program.

    On Server and Tools, Goldman is below the Street at $5.1 billion, noting longer sales cycles.

    For Microsoft Business Diision, the firm is at $6.5 billion, besting views. Notably, Microsoft will take that $6.2 billion write-down for its Online Services Division, which will not affect clean EPS expectations.

    For fiscal 2013, Goldman is looking for revs of $78.2 billion and EPS of $3.02, both slightly below views.

  • BGC Partners sees EPS of 64 cents and revs of $17.91 billion. The firm comments, "We expect that weakness in the windows division, compounded by the Windows 8 upgrade option program revenue deferral, is offset by sustained strength in server and tools, and business division. We look for strong cost controls to drive earnings upside above consensus. While short interest has risen to 94 million shares, we also mention that June quarter is fiscal year end for the company, and the Microsoft sales team typically delivers strong results to end the year."

    The firm sees Windows and Windows Live revs down 10.1 percent to $4.2 billion, with BGC baking in weaker PC sales and $500 million from the deferred revenue guarantee.

    Server and Tools revs of $5.0 billion, up 8.2 percent from last year.

    MBD at $5.9 billion, up 3.5 percent.

    Online Services Division of $716 million, up 8.2 percent year over year. BGC is bearish in the near-term here, but notes the overall importance of gaining solid traction with online search. The firm doesn't see losses greater than $500 million from here on out.

  • Back to MKM Partners, the firm sees revs of $18.2 billion and EPS of 63 cents. MKM sees limited downside following Intel's (Nasdaq: INTC) numbers and PC weakness already baked in. MKM "believes enterprise strength should offset consumer weakness, and expense controls should generate $0.01-$0.02 in EPS upside."
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 , Earnings , Stocks
Referenced Stocks: FB , INTC , MSFT

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