Mixed Signals Ahead of Microsoft Report

Dow component Microsoft Corp. (MSFT) reports fiscal Q3 2022 results after Tuesday’s closing bell, with analysts looking for a profit of $2.20 per-share on $49.05 billion in revenue. If met, earnings-per-share (EPS) will mark a 13% improvement over the $1.95 reported in the same quarter last year. The stock rose 2.9% in January after beating consensus and raising guidance, but the rally failed, yielding narrow rangebound action that’s still in place ahead of the news.

Growth Stocks Under Pressure

Mr. Softee faces the same issue as other tech giants, i.e. ultra-high valuation in a rising rate environment that rarely favors growth plays. However, Microsoft is clearly ‘best-in-class’, with unbeatable cloud computing growth and broad diversification that evens out revenue peaks and valleys. Even so, it’s just lost a large market due to the Russia – Ukraine war while red flags, like the broad slowdown in video game revenue, raises the prospect of a missed quarter.

Rosenblatt Securities analyst Blair Abernathy posted a bullish commentary ahead of the news, reiterating a ‘Buy’ rating and $349 price target. As he notes, “we believe enterprise IT spending, digital transformation project activity, and shift to the cloud trend remained strong in the March quarter.” On the flip side, Piper Sandler analyst Brent Bracelin had a more cautious take, maintaining an ‘Overweight’ rating while admitting there is “little margin for error” due to increasing global headwinds.

Wall Street and Technical Outlook

Wall Street consensus has been pristine for years, maintaining a ‘Buy’ rating based upon 36 ‘Buy’, 6 ‘Overweight’, and 2 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions. Price targets currently range from a low of $307 to a Street-high $410 while the stock is set to open Tuesday’s session more than $25 below the low target. This dismal placement highlights the failure of analysts to measure the impact of rising rates on investor risk appetites.

Microsoft posted exceptional returns into the current decade and barely skipped a beat during the pandemic, breaking out to a new high in June 2020. It continued to gain ground into November 2021’s all-time high at 349.67 and turned tail, breaking down from a small triple top pattern in January. The stock fell quickly into the 270s and has tested that support level three times into Monday’s close. Mixed signals in longer time frames suggest this range will hold, for now.

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