Microsoft Overbought and Overloved

Dow component Microsoft Corp. (MSFT) reports fiscal Q4 2021 earnings after Tuesday’s closing bell, with analysts forecasting a profit of $1.92 per-share on $44.3 billion in revenue. If met, earnings-per-share (EPS) will mark a 31% profit increase compared to the same quarter last year. The stock sold off nearly 3% in April despite beating Q3 expectations by wide margins and raising Q4 guidance. Buyers returned in June, lifting the tech giant into a series of all-time highs.

Overbought Signals Abound

Microsoft should post exceptionally strong results, as usual, but the stock has gained nearly 19% in the last seven weeks, setting off technically overbought signals. In addition, Mr. Softee has been named as a target by Biden administration trust-busters, even though it has avoided the broad swath of political controversy, unlike Facebook Inc. (FB) and Amazon.com Inc. (AMZN). Even so, its huge footprint has made it nearly impossible for small companies to compete, especially in the cloud computing segment.

Citigroup analyst Tyler Radke raised the firm’s target to $378 last week, noting “We expect to see a strong finish to Microsoft’s FY21 with a combination of recovering IT budgets, an uptick in expected reseller growth, signs of reacceleration in consumption models and slightly higher PC numbers vs. 3 months ago. The general numbers set-up looks attractive with conservative guidance against easy compares. We continue to like MSFT best in mega-cap software, with multiple levers for sustained DD growth at scale and significant room to run”.

Wall Street and Technical Outlook

Wall Street consensus is pristine, now yielding a ‘Buy’ rating based upon 21 ‘Buy’, 3 ‘Overweight’, and 2 ‘Hold’ recommendations. No analysts are recommending that shareholders underweight or sell positions. Price targets currently range from a low of $256 to a Street-high $378 while the stock will open Monday’s session about $11 below the median $300 target. Upside after the report appears limited, given the proximity to the median target and strong gains since June.

Microsoft cleared 16-year resistance in 2016 and entered an historic trend advance that stalled at 190 in February 2020. It returned to that level in May after a 58-point decline, ahead of a breakout that ended at 233 in September. The stock cleared that barrier in January 2021 and eased into a rising channel that broke to the upside last week. While this marks impressive strength, it also highlights a one-sided market that’s unlikely to persist in coming weeks.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.