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Will Microsoft (MSFT) Surprise this Earnings Season?

Microsoft Corp. (MSFT) is set to report the first-quarter fiscal 2015 results on Oct 23. Last quarter, the company posted a 3.3% negative surprise. Let’s see how things are shaping up for this announcement.

Factors to Consider this Past Quarter

Microsoft’s fiscal fourth-quarter earnings missed the Zacks Consensus Estimate due to lower gross margins. However, revenues of $23.38 billion were up 14.6% sequentially and 17.5% from last year, roughly in line with our estimates.

Gross margins declined sequentially due to the change in sales mix, which favored low-margin products.

Despite poor performance in the last quarter, we believe Microsoft’s recent restructuring, which includes trimming the workforce, will help it combat losses due to the persistent decline in worldwide PC sales and lower operating expenses. Additionally, the directional clarity and the decision to focus on fast-growing segments that play to its strengths have increased the optimism surrounding Microsoft shares.

Earnings Whispers?

Our proven model does not conclusively show that Microsoft will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: The Most Accurate estimate stands at 54 cents while the Zacks Consensus Estimate is lower at 48 cents. That is a difference of +12.50%.

Zacks Rank: Microsoft currently carries a Zacks Rank #4 (Sell) which lowers the predictive power of ESP.

We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

You could consider other stocks with a positive Earnings ESP and a favorable Zacks Rank such as:

The New York Times Company (NYT), with an Earnings ESP of +100.0% and a Zacks Rank #1 (Strong Buy).

United Insurance Holdings Corp (UIHC), with an Earnings ESP of +2.70% and a Zacks Rank #1.

Tallgrass Energy Partners, LP (TEP), with an Earnings ESP of +6.67% and a Zacks Rank #1.

Read the Full Research Report on MSFT
Read the Full Research Report on NYT
Read the Full Research Report on TEP
Read the Full Research Report on UIHC


Zacks Investment Research

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