Microsoft & Other Tech Bigwigs To Buy Ahead Of Earnings

The tech sector is unarguably going through its worst in the past decade or more. Tech companies are largely suffering due to an inventory glut for semiconductor companies. A tariff tussle with China has taken a toll on hardware makers, while Internet and social media companies are facing intense scrutiny following privacy scandals and issues. In the wake of such things, tech earnings are expected to decline 10.7% in the second quarter despite a 2.4% rise in revenues.

However, impressive earnings releases by two major tech players have provided some relief to the tech sector. Oracle (NYSE:ORCL) and Micron (NASDAQ:MU) reported better-than-expected earnings, putting doubts about the fundamental strength of the tech sector to rest. Let’s admit, despite the odds, the tech sector has registered healthy gains of around 27% through the end of June this year. This makes us wonder whether the world’s most valuable tech company, Microsoft Corporation (NASDAQ:MSFT) , can come up encouraging results when it reports after the closing bell on Jul 18.

Microsoft a Must Buy Ahead of Earnings

Following its fiscal third-quarter earnings release, Microsoft’s market capitalization breezed past the coveted $1-trillion mark. Now, the tech behemoth boasts a market cap greater than that of Amazon (NASDAQ:AMZN) and Apple (NASDAQ:AAPL). No doubt, the company’s initiatives to build cloud-based software and improve cloud computing services are helping Microsoft progress by leaps and bounds. These factors are expected to help Microsoft — a Zacks Rank #2 (Buy) company — report promising results this earnings season as well. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Microsoft’s cloud product, Azure, is coming up with big deals and is building immense pressure on Amazon Web Services. Azure, now, is not only the biggest contributor to the company’s commercial-cloud revenues but is also growing at a mind blowing rate. But, it’s just not Azure, the company’s other cloud-based products like Office 365 commercial and Dynamics 365 are also expanding at a steady pace.

In the fiscal third quarter, revenues from Microsoft’s intelligent cloud segment soared 22% year over year to $9.7 billion. In fact, Microsoft CFO Amy Hood pointed out that broad-based strength among commercial cloud products was driven by “healthy growth in the U.S., Western Europe, the U.K., and Germany.”

Needless to say, Microsoft’s legacy software and videogame business is thriving. In the fiscal third quarter, revenues from Windows, Surface sales, gaming, and search advertising, increased 8% from a year ago.

Analysts, thus, widely expect Microsoft to report $1.21 earnings per share in the fiscal fourth quarter, higher than $1.13 reported a year ago. Analysts also estimate sales of $32.8 billion for the quarter ended June, more than around $30 billion recorded a year ago.

Nonetheless, promising earnings performance, without a doubt, leads to a rally in share price. The company’s expected earnings growth rate for the current year is 18.3%, more than the Computer - Software industry’s estimated rise of 6.5%. In fact, the company has been outperforming the broader industry so far this year (+34.2% vs +33.9%).

But, why just invest in Microsoft? Investors should be little more adventurous and increase their bets on other tech stocks poised to post positive earnings results. In this process, you can double your returns. In order to make the search easier, we have selected tech stocks that flaunt a solid Zacks Rank and an Earnings ESP. This is Zacks’ proprietary methodology for determining stocks that have the best chance to surprise with their next earnings announcement. It provides the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.

Facebook, Inc. (NASDAQ:FB) provides various products to connect and share through mobile devices, personal computers, and other surfaces. The company is expected to report earnings results for the quarter ending June 2019 on Jul 24. Facebook has an Earnings ESP of +0.61%. The company’s expected earnings growth rate for the current quarter is 9.2%. The stock has a Zacks Rank #2.

Snap Inc. (NYSE:SNAP) operates as a camera company in the United States. The company is expected to report earnings results for the quarter ending June 2019 on Aug 1. Snap has an Earnings ESP of +4.76%. The company’s expected earnings growth rate for the current quarter is 23.1%. The stock has a Zacks Rank #2.

Square, Inc. (NYSE:SQ) provides payment and point-of-sale solutions in the United States. The company is expected to report earnings results for the quarter ending June 2019 on Jul 24. Square has an Earnings ESP of +5.31%. The company’s expected earnings growth rate for the current quarter is 9.2%. The stock has a Zacks Rank #2.

CGI Inc. (NYSE:GIB) provides information technology and business process services. The company is expected to report earnings results for the quarter ending June 2019 on Jul 31. CGI has an Earnings ESP of +1.27%. The company’s expected earnings growth rate for the current quarter is 9.5%. The stock has a Zacks Rank #2.

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