Wunderlich Lowers Microsoft 2015-2016 Estimates, But Keeps Valuation Premium

Microsoft Corporation (NASDAQ: MSFT) will announce its fiscal fourth-quarter financial results after the market closes on Tuesday. In a report published Monday, Wunderlich analysts Rob Breza and Ryan MacDonald provide a preview for some of the most relevant metrics.

The experts think expectations point toward an in-line quarter, with FX and Nokia to remain as headwinds. “Recent management changes and strategic alignment, strength in cloud adoption, specifically Office 365 and Azure, and capital allocation will likely remain core focuses for investors,” the analysts added.

Below are some key points to the firm’s investment thesis:

Strong Fiscal Year End

Industry channel checks suggest that Microsoft’s fiscal year will end strongly, “driven by adoption of cloud services, strength within the server and tools group, as well as strong cost controls that should lead to slight EPS upside.” Going forward, however, the analysts expect revenues to decline, although layoffs in Nokia and strong cost controls should somewhat cushion the tumble.

Related Link: What's Coming For Microsoft?

A Look At Nokia

Nokia will not see big investments, as mobile devices are already commoditized products. Instead, applications, ease of use and security will be the focus going forward.

Rating And Expectations

Wunderlich maintains a Hold rating and $52.00 price target on shares of Microsoft. The firm now expects EPS of $2.67 on revenue of $93.505 billion for 2015 and EPS of $2.86 on sales of $95.705 billion for 2016. Both revenue estimates were revised ever so slightly, downwards in the report.

For the fourth quarter, to be reported on Tuesday, they are modeling earnings of $0.58 per share on revenue of $22.105 billion, versus consensus of $0.39 per share and $21.991 billion.

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