Microsoft Corp. (NASDAQ:MSFT) is set to report FQ3 2014 earnings after the market closes on Thursday, April 24th. This quarter CEO Satya Nadella made a breakthrough announcement that for the first time ever Microsoft Office will be sold on the iOS operating system. Historically the war was always between Windows and Apple operating systems, but today the battles are being fought over mobile where Apple’s iOS is going head to head with Google’s Android OS. It appears that Nadella will continue to shift Microsoft toward becoming a cloud services and software as a service provider. Last quarter Microsoft reported much higher EPS and better revenue than the Street had called for and investors expect similar results Thursday.
The information below is derived from data submitted to the Estimize.com platform by a set of Buy Side and Independent analyst contributors.
The current Wall Street consensus expectation is for Microsoft to report 62c EPS and $20.463B revenue while the current Estimize.com consensus from 69 Buy Side and Independent contributing analysts is 67c EPS and $20.798B in revenue. This quarter the buy-side as represented by the Estimize.com community is expecting Microsoft to beat the Wall Street consensus by a wide significant margin.
Over the previous 6 quarters the consensus from Estimize.com has been more accurate than Wall Street in forecasting Microsoft’s EPS and revenue 5 times and 3 times respectively. By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non professional investors Estimize has created a data set that is more accurate than Wall Street up to 69.5% of the time, but more importantly it does a better job of representing the market’s actual expectations. It has been confirmed by Deutsche Bank Quant. Research and an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.
The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case we are seeing a large difference between the two groups’ EPS expectations and a moderate delta in revenue consensuses.
The distribution of estimates published by analysts on the Estimize.com platform range from 59c to 78c EPS and from $20.072B to $22.250B in revenues. This quarter we’re seeing a very wide distribution of estimates on Microsoft’s EPS and a moderate range of estimates on revenue.
The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A wider distribution of estimates signaling less agreement in the market, which could mean greater volatility post earnings.
Over the past 4 months the Wall Street EPS forecast fell from 67c to 62c while the Estimize consensus declined from 73c to 67c. Meanwhile Wall Street brought down its revenue projection from $20.633B to $20.463B while the Estimize consensus bounced around but eventually fell from a high point of $20.955B to $20.798B. Timeliness is correlated with accuracy and going into the report we still saw a very wide difference of opinion between the Estimize community and Wall Street.
The analyst with the highest estimate confidence rating this quarter is WallStreetBean who projects 73c EPS and $20.900B in revenue. WallStreetBean is ranked 10th overall among 4,200 contributing analysts. Over the past 2 years WallStreetBean has been more accurate than Wall Street in forecasting EPS and revenue 50% and 46% of the time respectively throughout 1204 estimates. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case WallStreetBean is making a bullish call expecting Microsoft to beat both the Estimize and Wall Street consensus on both the top and bottom line.
Before Nadella took over at the helm the direction of Microsoft was unclear. PC sales were flat and Windows was no where near as dominant as it used to be. It seems now that Satya Nadella, who comes from Microsoft’s cloud and enterprise division, has set the focus of Microsoft on what he knows best. This quarter contributing analysts on the Estimize.com platform have lofty expectations for Microsoft and are expecting the tech giant to beat Wall Street expectations by 5c per share in EPS and $335 million in sales.
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