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Microsoft Stock: Expect Another Killer Quarter Ahead

Could Microsoft stock finally reach the $2 trillion valuation? It could happen on Tuesday, April 27, when Microsoft reports fiscal third quarter results. Here is what to expect on earnings day.

With Microsoft stock up 17% and 55% year-to-date and over the past 12 months, respectively, investors await the next big move in share price. It could happen on Tuesday, April 27, when the Redmond, Washington-based software company reports fiscal third quarter results.

The Apple Maven, primarily concerned with its Cupertino-based peer, will keep an eye on Microsoft’s early 2021 performance. I will cover the earnings release and conference call via live blog on April 27, starting at 4 p.m. EST. Mark your calendars!

Expect another mic-drop quarter

Wall Street currently holds a “strong buy” consensus rating on Microsoft stock. However, in part because the stock has been running so hot lately, the average price target of the shares sits only 4% above current levels, suggesting little upside opportunity.

Regarding expectations for fiscal third quarter, analysts also look optimistic. The table below summarizes the expected results: year-over-year revenue growth of 17% and EPS (earnings per share) increase of 27%. For reference, the former would be Microsoft’s best sales performance since September 2018.

Figure 1: Microsoft earnings and revenues estimates.

Figure 1: Microsoft earnings and revenues estimates.

Key drivers of Microsoft’s performance

As I explained recently, Microsoft has a diversified business model. Unlike Apple, whose iPhone still accounts for roughly 50% of revenues, the Redmond tech company does not rely on one or a couple of products and services to produce its sales and earnings. See below.

Figure 2: Microsoft, Apple and Facebook pie chart by segment revenues.

Figure 2: Microsoft, Apple and Facebook pie chart by segment revenues.

I expect to see momentum from the recent video game console refresh cycle support the “more personal computer” segment. Within the same business category, lingering stay-at-home forces could also boost Surface, Windows licensing and Bing advertising revenues.

It is nearly guaranteed that Azure will post strong double-digit sales growth within intelligent cloud. The more important question, however, is whether the top-line increase will be enough to impress investors. The growth pace has been improving over the past couple quarters – although the secular trend is downward, as the cloud computing platform gains scale.

Lastly, productivity and business processes should display continued strength in product offering like Office 365 and cloud-based Dynamics. The ongoing digital transformation should also bode well for LinkedIn, Skype and OneDrive.

Quick question: $2 trillion?

Could earnings season provide the fuel that Microsoft needs to cross the $2 trillion valuation and join Apple stock in this select group? Microsoft stock is currently valued at $1.97 trillion. From here, a modest 1.5% bump is all that is needed for the landmark valuation to be reached.

Twitter speaks

Big Tech earnings week lurks around the corner. I asked Twitter: which major company will impress the most this quarter? Feel free to chime in below.

Explore more data and graphs

The table used in this report was provided by Stock Rover. I have been impressed with the breadth and depth of information on markets, stocks and ETFs that this platform provides. Stock Rover also helps to set up detailed filters, track custom portfolios and measure their performance relative to a number of benchmarks.

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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)