Microsoft Earnings Preview: Windows 7 Demand Strong

Microsoft [[MSFT]] could see their third consecutive earnings beat when the tech giant reports their fiscal third quarter 2010 results after the market closes on Thursday, April 22.


Last quarter, Microsoft posted 14% y/y revenue growth and delivered EPS that was $.14 above Wall Street consensus estimates. Those strong quarterly results were primarily driven by strong demand for the company’s new Windows 7 software. Based on initial evidence of strong pc sales in the first quarter, we expect that continued strong demand for Windows 7 could result in another strong quarter for Microsoft.   


Microsoft’s shares gained nearly 57% in 2009, and MSFT was one of the best performing stocks in the Dow Jones index (only American Express saw better gains). However, Microsoft’s stock has shown almost no gains in 2010 despite the 9% gain in the Nasdaq this year.


The current Wall Street consensus estimates are for revenues of $14.37 billion and EPS of $.42. We at are anticipating stronger results on the top-line with revenue of $14.42 billion and $.43 EPS.




Microsoft is now trading at 14x consensus 2011 EPS estimates. This is inline with the relative valuations of their peer group. Stronger than expected demand for Windows 7 should lift Microsoft’s share price in the coming weeks.


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