Microsoft Corporation (Nasdaq: MSFT) investors’ heads will be in the cloud on Thursday afternoon when the company reports fiscal fourth-quarter earnings. Analysts say the digital transformation phenomenon will be a major long-term catalysts for MSFT stock and could produce yet another earnings beat and some huge cloud revenue numbers.
Consensus Wall Street estimates are calling for Microsoft to report third-quarter earnings per share of $1.08. Analysts are also expecting revenue of $29.2 billion, up 18.3 percent from a year ago.
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Microsoft’s cloud business is the primary reason the stock is up more than 22 percent so far in 2018. Last quarter, Microsoft reported 58 percent growth in commercial cloud revenue, which includes Office 265 commercial, Azure and Dynamics 365. Commercial cloud revenue made up 22 percent of Microsoft’s total revenue last quarter, and investors will be watching to see how much that share grows in the fourth quarter.
Unlike other high-growth cloud stocks such as Amazon.com ( AMZN) and Alphabet ( GOOG, GOOGL) Microsoft is also returning a massive amount of cash to shareholders in the form of dividends and buybacks. Last quarter, Microsoft committed $6.3 billion to capital returns.
Analysts say the cloud will continue to be the primary catalyst for MSFT stock in the long-term.
Bank of America analyst Kash Rangan says digital transformation, the process by which companies adopt digital technology to improve the efficiency of their business, will be a key driver of cloud revenue. Rangan estimates the cloud computing market will expand to $475 billion within the next five years, and Microsoft and Salesforce.com ( CRM) are two of the best ways for investors to play the theme.
“We believe Salesforce.com and Microsoft are well positioned to be long-term winners in the era of digital transformation,” Rangan says. “In particular, we believe this trend can sustain double digit revs/EPS/FCF growth for MSFT.”
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Bank of America is expecting Microsoft’s cloud business to drive another quarterly EPS beat of $1.13 on Thursday. Bank of America is also expecting a slight revenue beat of $29.43 billion in the fourth quarter.
Bank of America has a “buy” rating and $123 price target for MSFT stock.
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Microsoft Corporation Earnings Preview: What to Expect from MSFT Stock originally appeared on usnews.com
