Reports Q3, 2021 results on Tuesday, April 27, after market close
Expected Revenue: $ 41.04 Billion
EPS Forecast: $ 1.78
Looking at Microsoft's (NASDAQ 🙂 continuously escalating stock price, it is clear that investors are not seeing the technology giant's strong growth momentum, fueled by the pandemic outbreak in March 2020, being interrupted anytime soon.
Microsoft Weekly Chart.
The stock, after climbing about 40% last year, is up another 17% this year, surpassing the benchmark's earnings, which rose 9% over the same period.
The software giant in Redmond, Washington, benefited most from lockdowns and the home environment they brought about over the past year, as both business and individual dependence on technology increased dramatically for the devices and services Microsoft sells
These favorable conditions are likely to persist even as the economy gradually reopens after the introduction of vaccines in the US and Europe. The company is expected to report a 27% increase in earnings per share to $ 1.78 for the third quarter of fiscal year 2021, compared to the same period a year ago. According to analyst consensus forecast, sales are likely to increase 17% to $ 41.04 billion.
Because of this strong earnings momentum, all 25 Microsoft analysts have a buy rating on the stock, according to Tipranks. Their consensus, one-year price target is $ 288.08, up 11% from Monday's closing price of $ 261.55 per share.
When a stock is trading near an all-time high when a earnings report is submitted and investors are so optimistic, it makes sense to be careful and look for the right opportunity to jump in. In our opinion, Microsoft will be an excellent candidate to buy based on post-earnings weakness if it occurs.
Acquisition Spree
There are many reasons to remain optimistic about MSFT. Chief among them is the company's growing share of the cloud computing market, where it is the second largest provider after Amazon (NASDAQ :).
Growth in that division jumped 50% in the previous quarter as corporate customers accelerated a shift to the cloud during the pandemic, where they can store data and run applications over the Internet. For more than three years in a row, revenues from Microsoft's Azure service have nearly doubled each quarter.
With sales in the cloud on the rise and the company's legacy Office product still bringing in hefty cash, the recent acquisition of MSFT opens up new growth opportunities. Early this month, Microsoft agreed to acquire artificial intelligence company Nuance Communications (NASDAQ :). The all-cash deal is Microsoft's second-largest acquisition after its $ 26 billion deal in 2016 to buy the professional network LinkedIn. Microsoft has made more than 100 acquisitions in the past four years, according to data provider Dealogic.
Satya Nadella, CEO of Microsoft, believes Nuance will help the company gain market share in technical healthcare applications, where the use of artificial intelligence is exploding. "This is expected to be one of the fastest growing infrastructure software revenue streams in history," he said of Nuance's expertise in clinical documentation.
Bottom Line
MSFT is well positioned to expand its market share into new areas of the digital economy while maintaining its leadership position with legacy software products such as Windows and Office.
This sustainable advantage will help the company achieve sustained double-digit growth in sales, earnings per share and free cash flow, making it a reliable tech stock to own over the long term.
