Analyzing Microsoft’s Stock Performance and Future Outlook

Microsoft (MSFT) has emerged as one of the most popular stocks on Zacks.com recently. Therefore, examining key factors that could influence the stock‘s performance in the near term is crucial.

In the last month, Microsoft’s shares have returned -1.7%, outperforming the Zacks S&P 500 composite’s -5.3% decrease. The Zacks Computer – Software industry, which includes Microsoft, recorded a decline of 1.2%. The pressing question remains: What will happen to the stock moving forward?

While media speculation and rumors about changes in a company’s business prospects can sway stock prices, fundamental factors remain essential drivers of long-term investment decisions.

Revisions to Earnings Estimates

At Zacks, we place significant emphasis on changes in a company’s earnings projections. The present value of future expected earnings largely determines the fair value of the stock.

Our analysis focuses on how sell-side analysts revise their earnings estimates based on current business trends. When earnings estimates for Microsoft increase, fair value typically rises, leading investors to buy the stock if it is undervalued. Empirical research shows a strong link between earnings estimate trends and short-term price movements.

For the current quarter, Microsoft anticipates earnings of $3.20 per share, reflecting an increase of +8.8% year-over-year. The Zacks Consensus Estimate has seen a slight decrease of -0.1% over the past 30 days.

For the current fiscal year, the consensus earnings estimate stands at $13.07, a year-over-year improvement of +10.8%, also down by -0.1% over the last month.

The next fiscal year projects an earnings estimate of $14.70, indicating a +12.5% change compared to last year. Similarly, this estimate has decreased by -0.1% in the previous 30 days.

Using our proprietary tool, Zacks Rank, which efficiently utilizes earnings revision data, Microsoft currently holds a Zacks Rank of #3 (Hold).

The chart below illustrates the trajectory of the company’s forward 12-month consensus EPS estimate:

12 Month EPS

Projected Revenue Growth

While earnings growth is a critical measure of a company’s financial well-being, increasing revenues is essential for sustained earnings growth. Understanding Microsoft’s potential revenue trajectory is consequently vital.

For the current quarter, the consensus sales estimate is $68.36 billion, suggesting a year-over-year increase of +10.5%. For the current and next fiscal years, estimates stand at $276.07 billion and $311.53 billion, indicating growth of +12.6% and +12.9%, respectively.

Last Reported Results and Surprise History

Microsoft’s last reported quarter revealed revenues of $69.63 billion, reflecting a year-over-year increase of +12.3%. The company reported EPS of $3.23, up from $2.93 a year prior.

When compared to the Zacks Consensus Estimate of $68.7 billion, Microsoft achieved a revenue surprise of +1.35%, while EPS exceeded expectations by +3.86%.

Notably, Microsoft has exceeded consensus EPS estimates for the past four quarters and has outperformed revenue estimates in each of those instances.

Valuation

Evaluating a stock’s valuation is critical for sound investment decisions. Understanding whether a stock is trading at its correct intrinsic value, considering its growth prospects, is essential for predicting future price performance.

Examining a company’s valuation multiples—like price-to-earnings (P/E), price-to-sales (P/S), and price-to-cash flow (P/CF)—against historical values can indicate whether a stock is overvalued, undervalued, or fairly valued. Comparing Microsoft’s multiples to industry peers also provides insight into its relative valuation.

Through the Zacks Style Scores system, the Zacks Value Style Score evaluates stocks on a scale from A to F. Microsoft received a D grade, suggesting it trades at a premium compared to its peers. Click here to explore the valuation metrics contributing to this assessment.

Conclusion

The insights shared here and additional information available on Zacks.com can help decide whether to consider the current market sentiments surrounding Microsoft. Its Zacks Rank of #3 suggests the stock may align with broader market performance in the near term.

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Microsoft Corporation (MSFT): Free Stock Analysis report.

This article was originally published on Zacks Investment Research (zacks.com).

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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.