Microsoft (MSFT) Rallies on Better-than-feared Results, Analysts Remain Very Positive
Microsoft Corp. (NASDAQ: MSFT) reported worse-than-expected FQ4 EPS and revenue, though the company’s shares still rose 3.5% in premarket trading.
MSFT reported FQ4 EPS of $2.23, missing the consensus estimates of $2.29. Revenue came in at $51.87 billion, short of the consensus projection of $52.45 billion. The company's Intelligent Cloud business generated $20.91 billion in revenue, while analysts were expecting $21.07 billion.
Microsoft reported $126 million in operating expenses from its decision to suspend sales in Russia, while employee severance expenses totaled $113 million. Unfavorable Forex movements dented revenue and EPS by $595 million and $0.04, respectively, in its fiscal fourth quarter.
The software giant said it expects double-digit sales growth for the fiscal year 2023, sending its shares almost 4% higher.
Goldman Sachs analyst Kash Rangan reiterated a Buy rating and a $365 per share price target on MSFT. Rangan sees the long-term bull thesis intact given:
“Estimates do not fully reflect the potential for a deeper recession, though we believe the durable theme of cloud migrations could help insulate top-line risk. Microsoft’s LT growth prospects benefit from being in the early innings of digitization, with cloud sub 1% of global GDP,” Rangan said in a client note.
Oppenheimer analyst Timothy Horan said the results showed that macro challenges are hurting Microsoft, but this is offset by market share gains in IT.
“We cautioned of an extraordinarily adverse environment, but Microsoft's powerful platform is benefiting from the digital transformation megatrend. It is now exploiting this by adding security, advertising, communications, CRM, etc. in a low-cost best-of-suite strategy, well suited for a recession, helped by scale advantages,” Horan wrote in a research note.
By Senad Karaahmetovic