Microsoft Earnings Preview: Fiscal Fourth Quarter 2009

Microsoft [[MSFT]] is scheduled to report their fiscal fourth quarter 2009 results after the market closes on Thursday, July 23. Based on our analysis, we at are expecting MSFT to report better than expected results that exceed Wall Street’s consensus expectations.


Analyst Expectations

We are forecasting revenues of $14.45 billion and EPS of $.38. This would represent a 9% decline in revenues from last year’s $15.84 billion in the same period. The current analyst consensus estimates calls for revenues of $14.38 billion and EPS of $0.36.


While Microsoft has certainly been feeling the impact of the recessionary environment, we feel that Intel’s [[INTC]] strong second quarter performance could be indicative of what we can expect from Microsoft. The company’s launch of new search engine Bing appears to be meeting with better than expected success. However, there remain concerns over whether Bing will be able to retain their market shares gains.


The improving economic environment should help spur consumer spending and we expect that enterprise IT spending will pick up in the second half of the year. This trend should accelerate next year, with Microsoft also benefitting from the release of Windows 7. However, given the lack of visibility in this continued recessionary environment we do not expect the company to provide any formal guidance for the remainder of the year.


Share Performance

Since the beginning of the year, Microsoft’s shares are up 24%. In 2008, MSFT’s shares fell 45% and underperformed the 34% decline in the Dow Jones industrial average.



Shares are now trading at 13x consensus 2010 EPS estimates. This is a discount to the relative valuations of their peer group. Microsoft appears to have several growth catalysts which could propel their shares higher over the next 12-18 months.


Recommendation: Buy with a $27 price target.


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