Microsoft Earnings May Make Or Break Tech (MSFT)

We’ve had a wild ride in the markets lately and investors are looking for the stocks that they think are A) still going to show growth and B) that offer a degree of safety in an unsafe environment.  Microsoft (NASDAQ: MSFT) fits that bill on both counts if you read around Wall Street, and it is set to report earnings after the close.

First Call has analyst estimates at $0.46 EPS on $15.95 Billion, although we’d remind you that Microsoft has been including many items in its headline EPS number.  Next quarter expectations from Wall Street are $0.44 EPS on $14.43 Billion in revenues, and its Fiscal June-2008 estimates are essentially $1.81 EPS on $59.35 Billion in revenues.  Keep in mind that Microsoft has already given some guidance for this quarter and beyond:

• For this quarter it guided $0.44 to $0.46 EPS on $15.6 to $16.1 Billion in revenues.
• For Fiscal June-2008 it guided EPS $1.78 to $1.81 on revenues of $58.8 to $59.7 Billion.

Analysts are still more positive on the stock with an average price target hovering around $40.00.  We noted that this was one of Jim Cramer’s favorite overlooked or oversold tech stocks.  Also just last week Goldman Sachs raised this one again to its CONVICTION BUY LIST, and we’ve noted this before about how Goldman Sachs seems to have the Midas Touch here on this one.

Up almost 2% mid-day at $32.50, Microsoft shares are up almost 5% from yesterday’s lows (also its recent lows) before the monster rally.  At the end of December shares were trading above $36.00.  Its 200-day moving average looks like it is $31.06, so yesterday’s lows will be key; its 50-day moving average is $34.24.  Options are hard to use for interpretation right now with the VIX having been over 30, but it appears that options traders are prepared to see this stock move up to a range of $1.60 to $1.85 in either direction today.

This company has so many moving parts that can be focused on: Vista, legacy XP, Office, Xbox & Bunge, Silverlight, Virtualization, Enterprise, Communication, Mobile, Zune, serach, advertising, and much more.  We are going to focus on how the company signals Windows Vista sales ahead for a glimmer into global PC sales and will focus on the enterprise customer spending to make final assumptions for tech spending out of major corporations in 2008.

We’ve already seen Intel and Apple take a serious blow before and after their earnings, and the results elsewhere are frankly mixed.  Wall Street is expecting another solid quarter out of Microsoft and it sure appears that it is expecting it to keep guidance in-line with prior targets.

Jon C. Ogg
January 24, 2008