Earnings season is upon us again and after the market closes next Tuesday (October 25), Microsoft (MSFT) will release its results for the first quarter of fiscal 2023 (1QFY23).
Against the backdrop of moderating IT budget growth expectations, an unfavorable currency environment and a weak PC market, Morgan Stanley analyst Keith Weiss says it’s no surprise that Investors are concerned about the broader impact these items could have on Microsoft’s earnings and guidance.
“That said,” continued the 5-star analyst, “strong insights into business operations from our channel conversations and another set of robust Microsoft-specific results from our latest CIO survey bolster our confidence in Microsoft’s resilience across key secular growth areas, as well as positioning in defensive categories, both supporting demand for Microsoft solutions.
Weiss thinks investors will be happy to see Azure, the tech giant’s cloud service, achieve 43% cc growth in the quarter and a guideline of 30% high to 40% low. Despite the slowdown in overall IT spending, according to Weiss polls, even in the current macro environment, the migration of workloads to Azure has been “fairly sustainable.” Additionally, with cloud computing and digital transformation still among the “top priorities” for CIOs, this secular tailwind should make Microsoft “resilient” to the easing IT spending environment.
Elsewhere, with forecasts from Gartner and IDC suggesting further declines in PC shipments, the Windows OEM business is set to face headwinds in FY23. Likewise, the strong dollar spells bad news. on the currency front.
And while in the latest earnings call, Chief Financial Officer Amy Hood indicated that the company still expects “double-digit revenue and operating income growth in constant currency and US dollars,” Weiss thinks that given all the current issues, sustaining reported double-digit growth “seems difficult.”
As a result, the analyst’s new model now projects reported revenue growth of 8.1% (or 12.7% cc) and operating profit growth of 7.8% (or 15.6% cc). ).
Nevertheless, despite lowering short-term expectations, with a “long-term total return profile for teenagers and an attractive valuation”, Weiss still considers MSFT to be one of his “best ideas”.
As such, Weiss is sticking to an overweight (i.e. buy) rating, although the price target is lowered from $354 to $325. The implication for investors? Up approximately 38% from current levels. (To see Weiss’ track record, Click here)
Wall Street remains firmly in Microsoft’s corner; 3 Aside, the other 26 recent reviews are positive, making the consensus here a strong buy; passing through the average target of $320.73, the shares will appreciate by 35% over the next few months. (See Microsoft stock predictions on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The Content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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