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Should You Buy Microsoft Stock Before Its Q4 Earnings?

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On Tuesday, Microsoft stock fell 1.4 percent and closed at $208.75. The stock was trading 3.5 percent below its 52-week high of $216.38 and 59.6 percent above its 52-week low of $130.78. At the closing price on Tuesday, Microsoft stock had a market capitalization of $1.6 trillion.

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Microsoft’s Q4 earnings expectations

Microsoft will likely report its earnings for the fourth quarter of fiscal 2020 (quarter ended June 30) after the market closes today. Should you buy Microsoft stock before its earnings results? 

Analysts expect Microsoft to post revenue of $36.50 billion in the fourth quarter—a growth of 8.3 percent YoY (year-over-year) from $33.72 billion. Also, they expect the company to post an adjusted EPS of $1.34—down from $1.37 in the fourth quarter of fiscal 2019.

Analysts’ recommendations for Microsoft stock

Among the 36 analysts tracking Microsoft stock, 33 recommend a buy—down from 34 last month. Three analysts recommend a hold—unchanged from last month. None of the analysts recommend a sell. Analysts have an average target price of $220.57 on Microsoft. The target price implies a 5.7 percent rise based on the stock’s closing price of $208.75 on Tuesday.

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This week, Brad Reback of Stifel increased his target price on Microsoft stock from $200 to $215 and gave the stock a buy rating. Reback thinks that the company will likely post strong numbers in the fourth quarter due to Azure and Office 365. According to TheFly, “The analyst, who believes Azure, Office365, and Microsoft’s gaming assets are net short- and long-term beneficiaries from the pandemic, expects healthy upside to EPS and revenue, but cautions that he thinks Microsoft may offer conservative guidance for FY21.”

Jefferies analyst Brent Thill increased his target price on Microsoft stock to $240 from $200 and maintained his buy rating. Thill expects the company to post strong fourth-quarter earnings results amid the coronavirus pandemic. The tech giant will likely benefit from its cloud-computing service Azure and gaming systems amid the work-from-home shift.

Raymond James analyst Robert Majek also increased his target price on Microsoft stock to $225 from $208 and maintained his strong buy rating.

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Wedbush analyst Daniel Ives is also bullish on Microsoft before its fourth-quarter earnings results. Ives reiterated his outperform rating with a target price of $260. According to TheFly, Ives “has seen robust cloud deal activity around Azure in the field during the June quarter with modest cloud upside expected, as this current work from home environment is further catalyzing more enterprises to make the strategic cloud shift with Microsoft across the board.”

Peer comparison

Amazon and Google are Microsoft’s major competitors in the cloud computing space. Both of the companies will likely report their second-quarter (quarter ended June) earnings results on July 30.

In the quarter, analysts expect Amazon’s sales to rise 27.8 percent YoY to $81.0 billion from $63.4 billion. They also expect the company to post an adjusted EPS of $1.33 during the quarter compared to $5.22 in the second quarter of 2019.

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For the second quarter, analysts expect Google to report revenue of $37.3 billion—a 4.1 percent reduction YoY from $38.9 billion. They expect the company to post an adjusted EPS of $8.23 compared to $14.21 in the second quarter of 2019.

As of Tuesday, Amazon and Google had average broker target prices of $2,980.85 and $1,609.51, respectively. These figures imply -5.0 percent and 3.4 percent returns, respectively, over the next 12 months.

Microsoft’s stock returns

Based on the closing price on Tuesday, Microsoft stock was trading 1.3 percent above its 20-day moving average of $205.99, 7.4 percent above its 50-day moving average of $194.45, and 16.8 percent above its 100-day moving average of $178.76. Microsoft’s 14-day relative strength index score is 58. The score suggests the stock is not overbought or oversold. Microsoft’s lower, middle, and upper Bollinger Band levels are $195.60, $205.99, and $216.37, respectively. On Tuesday, the stock closed near its middle Bollinger Band, which suggests that it is neutral.

On Tuesday, the Dow Jones Industrial Average rose by 159.53 points or 0.60 percent. The S&P 500 and the Nasdaq Composite returned 0.17 percent and -0.81 percent, respectively.

Microsoft has its sights set on future growth. The stock has increased 316 percent since the company bought LinkedIn.

Stay tuned to learn how Microsoft performed in the June quarter.

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