Microsoft stock to move past consensus in Q2?


Microsoft (NASDAQ: MSFT) is expected to report its second quarter 2023 results on Tuesday, January 24, 2023. We expect the stock to exceed consensus estimates of sales and earnings. The company outperformed street expectations in the first quarter of FY 2023 (FY July-June), with total revenues growing 11% yoy to $50.1 billion. It was driven by a 9% increase in productivity and business processes and a 20% growth in the intelligent cloud segments, partially offset by a slight decline in the more personal computing business. We expect the same trend to continue in Q2 results.

Our forecast indicates that Microsoft’s valuation is $318 per share, which is 35% higher than the current market price of about $236. Our interactive dashboard analysis on Microsoft earnings example has more details.

(1) Expected revenues will exceed consensus estimates

Microsoft’s earnings increased 18% yoy to $198.3 billion in FY2022. The same trend continued in the first quarter of FY2023.

  • Productivity and business process revenue grew 18% in the past fiscal year. Further, it increased 9% yoy to $16.5 billion in Q1 FY2023, driven by growth in the Office 365 Commercial and LinkedIn categories. We expect the same trend to continue in the second quarter.
  • Intelligent cloud revenues grew 25% last year and 20% in the first quarter of FY2023. We expect growth momentum to continue in the second quarter.
  • While more personal computer revenues improved in FY2022, there was a slight decline in the first quarter of FY2023 due to lower Windows revenues. We expect second quarter results to be in line.
  • In general, we predict that from Microsoft
    revenue to $212.6 billion for FY2023.

Trefis estimates Microsoft’s second quarter 2023 net revenues to be approximately $53.65 billion, slightly above the consensus estimate of $52.99 billion.

The tech companies are finding it difficult to sustain the high growth rate of the pandemic. Further, difficult macroeconomic conditions have added to their woes, and Microsoft is no exception. It recently announced plans to lay off 10,000 employees to better align its cost structure with revenue.

(2) EPS is likely to beat consensus estimates

Microsoft Q2 2023 adjusted earnings per share expected to be $2.37 according to Trefis analysis, 3% above the consensus estimate of $2.31. The company’s net income declined 14% yoy to $17.56 billion in the first quarter of FY2023. This was due to a higher effective tax rate compared to last year. Further, we expect second quarter revenues to decline year-over-year due to higher costs as a % of revenues. Overall, Microsoft will likely report annual GAAP EPS of $10.25 for FY 2023.

(3) Estimated share price is 35% above current market price

We arrive at Microsoft’s valuationbased on a GAAP EPS estimate of approximately $10.25 and a P/E multiple of 31x in fiscal 2023. This translates to a price of $318, which is 35% more than the current market price of nearly $236 .

Note: P/E multiples are based on year-end share price and reported (or expected) full-year adjusted earnings

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