Microsoft MSFT is set to report its Q3 fiscal 2020 earnings results on Wednesday, April 29, as part of week that features fellow industry heavyweights such as Alphabet GOOGL and Apple AAPL. The coronavirus has already forced giants like IBM IBM to withdraw their guidance and the overall earnings picture is expected to be rough, with things set to get worse in the coming quarters.
That said, Microsoft stock is up roughly 9% in 2020, against the S&P 500’s 13% downturn. So, it’s time for investors to decide if they should consider buying MSFT stock as a safe-haven amid what could be more volatility.
Overall Earnings Picture Overview
Stocks swung between small gains and losses in morning trading Friday in a week that has seen the S&P 500 and the Dow cool off after hot streaks, which saw the S&P climb roughly 25% since its March 23 lows. The positivity came on the back of hope that social distancing and stay-at-home orders to help slow the spread of the coronavirus are working.
Meanwhile, governments around the world are starting to figure out how to start reopening parts of their economies, after millions of people lost their jobs in a matter of weeks. There might be even more of a push to try to return to work and production when the full impact of the coronavirus-induced shut down is felt.
For instance, our latest Zacks estimates call for overall S&P 500 earnings to fall over 14% in Q1, down from the +4% projected in January. And things are expected to get worse, with Q2 earnings now expected to plummet -28.1% and Q3 expected to suffer a -15.3% decline (also read: Making Sense of the Earnings Picture During the Coronavirus).
Energy, transportation, autos, consumer discretionary, and other sectors look as though they will be hit the hardest. However, tech sector S&P 500 earnings are only expected to be slip -1.9% in the first quarter.
Will MSFT Stay Above the Fray?
Microsoft stock appears nearly as safe as any tech stock at the moment given its broad portfolio that now heavily features cloud computing, alongside software and solutions geared toward businesses. MSFT has become a cloud leader and many of its offerings might shine during the current work-from-home environment.
The firm’s Azure cloud competes against Amazon AMZN, while its subscription-based Office 365 suite is essential for companies big and small, students, governments, and more. The coronavirus has also brought Skype and its work-focused communication platform, Teams to the forefront. And MSFT looks ready to take on challengers such as Slack WORK and Zoom ZM—MSFT also owns LinkedIn.
MSFT did warn in late February that it was likely to miss its quarterly sales guidance for its More Personal Computing segment. Luckily at the time, it said its Q3 guidance “remain unchanged” for its other units, which is a great sign since its Productivity and Business Processes revenue jumped 17% last quarter, while Intelligent Cloud sales surged 27%. And its personal computing segment revenue popped just 2%.
Along with its cloud-heavy growth model, which should be able to expand during the current economic environment, Microsoft’s dividend yield rests at 1.19% and it’s trading at a discount compared to its industry’s average. MSFT also has $134 billion in cash, cash equivalents, and short-term investments to help it weather the storm and likely even continue to buy back stock—it announced a new $40 billion buyback program last fall.
Moving on, our Zacks estimates call for MSFT’s Q3 fiscal 2020 revenue to climb 10.7% to reach $33.85 billion. This figure would mark a small slowdown compared to last quarter’s roughly 13.7% sales growth.
Peeking ahead, the historic tech giant’s full-year revenue is projected to climb 11.6% and 11%, respectively in FY20 and FY21. These would come on top of 2019 and 2018’s 14% expansion and easily top 2017’s roughly 6% growth.
Microsoft’s adjusted Q3 earnings are expected to pop 11.4%, with its full-year EPS figures projected to surge over 17% and 11.1%, respectively in fiscal 2020 and 2021. Investors should also note that MSFT has topped our quarterly earnings estimates by over 10% in the trailing four periods, including a 14% beat last quarter.
Microsoft is currently a Zacks Ranks #3 (Hold) and has seen its earnings revisions trend in the wrong direction recently. That said, we can see that its Q3, FY20, and FY21 estimates remain elevated from where they were 90 days ago.
Shares of Microsoft have jumped over 30% since their March 23 lows to push it up 9% in 2020 and 33% in the last 12 months. Despite the climb, MSFT still sits around 9% off its 52-week highs. Therefore, Microsoft seems like a safe longer-term investment, even though it could fall in the near-term amid broad economic uncertainty.
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