We've done quite a few large-cap tech stocks here on MarketConsensus with coverage on Dell (DELL), Google (GOOG), Apple (AAPL), Amazon.com (AMZN) and Yahoo! (YHOO) among others. With the impending Microsoft (MSFT) earnings release on Thursday, we thought we'd take it a step further and have a shot at predicting earnings. So here goes.
Windows 8 will mainly be responsible for the higher net sales figure that we expect in Q4 2012. We expect sales of about $14.2B, which would be up 20% from the previous quarter. Unless, MSFT can convince consumers that a 'move to the cloud' is viable, its net sales will continue to be lower than expected with big name competitors rapidly taking away MSFT's market share in its long-established businesses.
Nevertheless, there are quite a few things that MSFT can do to start a turnaround in 2013. As reported in InformationWeek: "With opportunities on the client side declining, Microsoft needs to get more aggressive about packaging and marketing Big Data, Cloud, Services, XBox and Hardware solutions. Dedicated hardware, along the lines of IBM's Netezza Data Warehouse Appliance, would be a good step".
The EPS that we came up with matches the consensus EPS of 0.75, which is a decline from the 0.78 value from this time last year. This is obviously not a good sign for the software titan. But there are encouraging signs with MSFT looking to move into higher gross profit margin generating business lines, like Tablets.
We don't expect revenues to grow considerably from Q3 2012 with Windows 8 – unveiled in October – turning out to be quite a disappointment at least in the short term. PC sales have also not met expectations and this puts our revenue estimate for the last quarter to be around $21B – a number that is just under the average analysts estimate.
For those following MSFT stock, the consensus price target is $35. This is quite troubling for investors given the relatively small upside even with all the reports pointing to the Redmond, WA based tech giant being undervalued.
Nonetheless, MSFT is in terrific shape as a company even though the stock price has been sluggish over the last decade. Traders will have to watch the consensus numbers as they help in assessing the trajectory of a stock price. The massive stash of cash MSFT holds is a big plus along with its dominant position in the tech industry with a market cap of $229.35B.