Early June, Microsoft (MSFT) lowered its forecast for the fourth quarter (June quarter) due to the strength of the US dollar against other currencies and its effect on exchange rates. Since then, as the euro and yen exchange rates have fallen to 20-year lows against the US dollar, FX headwinds have persisted.
BMO analyst Keith Bachman believes they have actually increased since the update and will impact June quarter results (Microsoft will report on July 26) as well as the outlook for the fiscal year 23. As such, Bachman has now cut its revenue forecast for the next five quarters.
For the June quarter, Bachman’s year-over-year revenue growth forecast rises from 14.8% to 12.6%, with the currency impact “worsening” from minus 2 points to minus 4 points. For the year ahead (FY23), the revenue growth outlook also declines – from 13.9% to 12.1% (currency impact weakens from less than 1 pt to nearly 3 pts).
Further dampening expectations and increasing the likelihood of headwinds for Windows OEM Non-Pro and Surface revenue in FY23, the analyst expects the PC market to “continue to weaken.”
“Working with our semiconductor team,” Bachman explained, “we believe that recent total notebook ODM shipments have been lower than expected, and channel checks have indicated that the weakness has spread to the commercial market.
It’s not all bad though. Even in a debilitating macroeconomic climate, Bachman expects Azure’s growth to “remain strong,” while the possibility of a recession won’t slow public cloud migration significantly. Also, over time, larger infrastructure workloads will “more and more migrate” to Azure. That said, if the macro environment continues to deteriorate, the “consumption” side of Azure (IaaS and PaaS solutions), which Bachman says is larger and has historically grown faster than the user side of Azure ( Enterprise Mobility and Security), could be negatively impacted.
Bachman also thinks Microsoft has “both good offensive and defensive attributes” and praises the “depth and breadth” of its portfolio. As such, the analyst is sticking to an outperform (i.e. buy) rating, although negative developments necessitate a lowered price target. The figure rises from $345 to $305, leaving room for 19% growth over the coming year. (To see Bachman’s track record, Click here)
Overall, almost all of Bachman’s colleagues agree. The stock currently has a strong buy consensus rating, based on 28 buys and 1 hold. At $345.53, the mid-price target could generate returns of around 32%. (See Microsoft stock predictions on TipRanks)
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Disclaimer: 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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