Results: Microsoft Corporation Exceeded Expectations And The Consensus Has Updated Its Estimates - Yahoo Finance

A week ago, Microsoft Corporation (NASDAQ:MSFT) came out with a strong set of second-quarter numbers that could potentially lead to a re-rate of the stock. It was overall a positive result, with revenues beating expectations by 3.4% to hit US$37b. Microsoft reported statutory earnings per share (EPS) US$1.51, which was a notable 14% above what analysts had forecast. Analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. We've gathered the most recent statutory forecasts to see whether analysts have changed their earnings models, following these results.

Check out our latest analysis for Microsoft

NasdaqGS:MSFT Past and Future Earnings, February 3rd 2020

Taking into account the latest results, the latest consensus from Microsoft's 30 analysts is for revenues of US$142.2b in 2020, which would reflect a credible 5.9% improvement in sales compared to the last 12 months. Statutory per share are forecast to be US$5.68, approximately in line with the last 12 months. Yet prior to the latest earnings, analysts had been forecasting revenues of US$140.3b and earnings per share (EPS) of US$5.39 in 2020. Analysts seem to have become more bullish on the business, judging by their new earnings per share estimates.

Analysts have been lifting their price targets on the back of the earnings upgrade, with the consensus price target rising 11% to US$194. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. There are some variant perceptions on Microsoft, with the most bullish analyst valuing it at US$210 and the most bearish at US$150 per share. As you can see, analysts are not all in agreement on the stock's future, but the range of estimates is still reasonably narrow, which could suggest that the outcome is not totally unpredictable.

One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. We would highlight that Microsoft's revenue growth is expected to slow, with forecast 5.9% increase next year well below the historical 8.5%p.a. growth over the last five years. By way of comparison, other companies in this market with analyst coverage, are forecast to grow their revenue at 12% per year. Factoring in the forecast slowdown in growth, it seems obvious that analysts still expect Microsoft to grow slower than the wider market.

The Bottom Line

The biggest takeaway for us from these new estimates is that the consensus upgraded its earnings per share estimates, showing a clear improvement in sentiment around Microsoft's earnings potential next year. Fortunately, analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that Microsoft's revenues are expected to perform worse than the wider market. There was also a nice increase in the price target, with analysts feeling that the intrinsic value of the business is improving.

Still, the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple Microsoft analysts - going out to 2024, and you can see them free on our platform here.

We also provide an overview of the Microsoft Board and CEO remuneration and length of tenure at the company, and whether insiders have been buying the stock, here.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.

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