Friday: Microsoft Earnings Surprised Everyone

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By John J. Edwards III
Staff Reporter

Those masters of the universe at

Microsoft

(MSFT) - Get Report

gave the markets an early-spring Christmas present to match the

snow

that fell on Manhattan this morning. The software giant's earnings, reported last night, were a remarkable 79 cents per share, blowing away the

First Call

consensus estimate of 64 cents.

The tech-driven

Nasdaq Composite Index

and broader market indices are higher behind Microsoft's 5 3/4-point rally to 103 7/8. The stock has set a 52-week high of 104 intraday. At that price, the company's market capitalization had risen $7.1 billion from yesterday's close of 98 1/8, to $125.1 billion.

The Microsoft report was a genuine stunner, with no one on Wall Street remotely expecting such a powerful figure. The First Call survey of 24 analysts found a range of 61 cents to 67 cents, spokesman Rob Gowen said. "It looks like everyone was pretty tightly packed between there," he said. "There was nobody that was anywhere near being outstanding." Gowen wouldn't provide individual analysts' names or firms.

A spokesman at Microsoft's investor relations department said the company found a similar range, 60 cents to 66 cents. Asked if anyone had been close to the 79-cent figure, he amusedly responded, "No, no, no."

But even with Microsoft looking invincibly strong on the performance of its Office 97 software suite and the prospects for the Windows 97 operating system, not every observer is an unrestrained cheerleader. Rick Berry, an analyst who follows Microsoft for

Murphey Marseilles Smith & Nammack

, was one of two analysts to slap a rare sell rating on MSFT in the just-ended quarter, according to

Baseline

.

Berry, who made his contrarian call March 12, said he set a one- to two-month price target of 86. The stock closed at 98 3/4 that day and traded as low as 87 1/2 intraday March 24 before rebounding. But Berry doesn't feel a bit chastened by the big earnings number.

"The stock hit 103 1/2 in January and actually reversed down," Berry said. "To me, that is the first sign of a reversal in a stock. Now we're back up there four months later. I don't care what anyone says, the stock is not cheap. You're going to pay 35 times earnings? Go ahead."

Even today's post-earnings bounce in Microsoft's price hasn't impressed Berry, who predicted that the shares would finish below their opening price of 104. "There's no bargain here," he said. "The train's already left the station as far as that goes."