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Microsoft a Must Buy Ahead of Fiscal Q1 Earnings

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Microsoft Corporation (MSFT - Free Report) has an impressive record with respect to beating earnings estimates. The company, which develops and supports software worldwide, hasn’t seen a discouraging quarter since April of 2016.

Microsoft’s initiatives to become a more cloud-centric company have been impressing market pundits. The software giant concluded fiscal 2018 with a promising 21% year-over-year increase in operating income and 14% boost in revenues. Needless to say, the company outperformed the broader industry in the last one-year period (+37.5% vs +24.6%).

 

In fourth-quarter fiscal 2018 (which ended on Jun 30, 2018), Microsoft’s net income increased 36% year over year and revenues went up 17% from the prior-year quarter. So, the obvious question is whether Microsoft can keep up its strong momentum heading into first-quarter fiscal 2019 earnings on Oct 24.

Cloud Growth a Key Factor This Earnings Season

Microsoft’s commercial-cloud operations have been a major driving factor of late. The company commercial-cloud products primarily include Azure, Office 365 commercial and Dynamics 365. Majority of analysts believe that this category will maintain rapid growth and in turn have a positive impact on the company’s earnings narrative.

Microsoft CFO Amy Hood, by the way, said that “customer commitment to our cloud platform continues to increase.” In fact, she added that “in FY18, Microsoft closed a record number of multi-million dollar commercial cloud agreements and more than doubled the number of $10 million-plus Azure agreements.”

Lest we forget, Azure is not only the biggest contributor to the company’s commercial-cloud revenues but is also growing at a mind blowing rate. In Microsoft’s most recent quarter, Azure revenue soared nearly 89% year over year.

Credit also goes to the company’s CEO Satya Nadella. He took quite a few valuable assets like Microsoft Office and moved them to the cloud and created cloud-hosted software services. This transition should boost profit margin and revenues.

Earnings Results Expected to be Encouraging

Analysts widely expect Microsoft to report 96 cents earnings per share in first-quarter fiscal 2019, higher than 84 cents recorded a year ago.

The company’s current-year earnings are expected to rise 9.8%, slightly higher than the industry’s gain of 9.6%. The Zacks Consensus Estimate for earnings has trended upward over the past 60 days, as estimates have moved up from $4.25/share two months ago to $4.26/share right now.

Upbeat earnings performance eventually leads to a rally in the share price. Given the bullishness, this stock possesses a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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