Microsoft Corp. (MSFT) is set to report second-quarter fiscal 2015 results on Jan 26. Last quarter, the company posted a 10.2% positive surprise. Let’s see how things are shaping up for this announcement.
Factors at Play
Microsoft’s first-quarter earnings of 54 cents beat the Zacks Consensus Estimate driven by its focus on segments like cloud & mobile. Also, lower headcount and product rationalization aided revenue growth.
Revenues of $23.20 billion were up 0.8% sequentially and 25.2% year over year, backed by strong demand across all its product lines. However, gross margins declined from the last quarter due to a change in sales mix favoring low-margin products.
Microsoft’s directional clarity and the decision to focus on fast-growing segments that play to its strengths have increased investors’ optimism. Moreover, we believe the company’s services and technology are being used in more devices across the existing PC and mobile platforms, as well as emerging platforms like wearables and the Internet of Things (IoT). This should continue to drive results in the quarters to come.
Earnings Whispers?
Our proven model does not conclusively show that Microsoft will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: The Most Accurate estimate stands at 67 cents while the Zacks Consensus Estimate is higher at 69 cents. That is a difference of -2.90%.
Zacks Rank: Microsoft’s Zacks Rank #3 (Hold) increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.
We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
You could consider the following stocks with a positive Earnings ESP and a favorable Zacks Rank:
The Allstate Corporation (ALL), with an Earnings ESP of +3.05% and a Zacks Rank #1 (Strong Buy).
Spirit AeroSystems Holdings, Inc. (SPR), with an Earnings ESP of +7.79% and a Zacks Rank #1.
Knight Transportation Inc. (KNX), with an Earnings ESP of +3.03% and a Zacks Rank #1.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment