Q1 Preview: Microsoft (MSFT) Just May Have IT for Solid Quarter

Microsoft (Nasdaq: MSFT) shares are higher Thursday ahead of the company's third-quarter earnings release, expected out before the market opens Friday. The stock last traded at $26.70, up 1.2 percent from Wednesday's close.

A consensus of analysts on Wall Street expect Microsoft to report EPS of $0.56 on revenue of $16.19 billion. Last quarter, the Redmond, WA-based software and tech giant reported earnings of $0.77 per share on sales of $19.6 billion, both beating the consensus. Looking back at the third quarter of last year, Microsoft issued EPS of $0.45 on revs of $14.50 billion, versus consensus EPS of $0.42 and revs of $14.38 billion.

Shares fell 8.7 percent through the quarter and are up 4.8 percent since.

Microsoft shares currently trade at a P/E of 9.6x FY12 EPS estimates, compared with 12.3x at Apple (Nasdaq: AAPL) and 14.7x at Oracle (Nasdaq: ORCL)

Data from Bloomberg has 27 analysts with a Buy on Microsoft, 9 with a Hold, and one suggesting to Sell. The analyst price target average is $33.50, with a high of $37 and low of $30. Shares have traded in a range of $31.43 - $22.73 over the last 52-weeks.

Analyst Summary

• J.P. Morgan is looking for EPS of $0.59 on revs of $16.239 billion. JPM notes the March quarter is typically the weakest for Microsoft due to seasonality in PC shipments. JPM is "estimating an organic, constant-currency revenue decline of 19.1% compared with an historical average decline of 9.3%, which may help provide some cushion if the weak PC market impacts the quarter." JPM also said Microsoft may avoid the usual weakness in PC demand for two reasons: "1) Any inventory build by OEMs would mask the weakness temporarily, and 2) among the reasons Gartner cited for weakness in PC demand was the consumer market in China, where about 90% of MSFT software is pirated anyway."
  
  
• Collins Stewart is looking for EPS of $0.55. The firm points out whisper numbers for Microsoft may be a little lower, following bearish data from Gartner and IDC through the quarter. The firm believes there will be solid growth from Microsoft, following its disclosure of 350 million Windows 7 licenses sold. Other Microsoft units should benefits from increasing IT demand, and its Online Services division should start seeing some kickback from Yahoo! (Nasdaq: YHOO).
  
  
• BGC is looking for EPS of $0.55 and revs of $15.98 billion. BGC expects Microsoft to show growth in enterprise and emerging markets, as the firm does not see tablets replacing primary-use PCs anytime soon. BGC also says Microsoft Officer 2010 sales are 50 percent better then Office 2007, making it the best-selling consumer version of Office in history.
  
  "We also highlight that the recently signed agreement with Nokia to have Windows Phone7 (WP7) power Nokia handsets is a major win that should propel future versions of this operating system to #2 in market share, with a distinct possibility at being the #1 if Android runs into legal constraints."

Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results withi0 n seconds of the release.

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