Microsoft Corporation (MSFT) FQ1 Analysis

Microsoft Corporation (MSFT) FQ1 Analysis
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Microsoft Corporation (NASDAQ:MSFT) fiscal first quarter 2014 earnings were better than street expectation, though the results were not striking, but surprised the street and “any upside is good news when the set-up is so cautious,” according to analysts Rick Sherlund, Frederick Grieb and Xiaoyan Zhang of Nomura Equity Research.Microsoft Corporation (MSFT) FQ1 Analysis

Microsoft Q1 results positive

For the quarter, Microsoft Corporation (NASDAQ:MSFT) revenue surged 16%, but after excluding tech guarantees, which “pulled revenues out of last year’s results”, the normalized or underlying growth was 7%, outperforming street expectations of 3%. Earnings per share came in at $0.62 compared to $0.53 earned in the corresponding quarter of last year. After taking in the normalized EPS adjusting for tech guarantees, EPS comes in at $0.63 compared to $0.65, which is a decline of 3%. Analysts note that 14% normalized growth in unearned revenues was satisfactory.

For the reported quarter, cash flow from operations was $8.2 billion, which was a decline of 3% from the previous year, due to more than usual sequential progression in accounts receivables. The software giant repurchased $2.2 billion shares, which was up from last year’s $1.6 billion and $1.0 billion sequentially.

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Growth going forward

It is expected that growth, going forward, will be driven by Surface, Xbox hardware and Nokia handsets, owing to which analysts increased their estimates, but analysts also say that it is in part at the expense of lower margins.

Estimates are based on the expectations that Nokia’s acquisition will be concluded in the first quarter, and will include $5 billion of revenues this fiscal along with negative earnings impact by around $0.08 per share, and $12.5 billion next year in revenues along with negative impact of around $0.12.

Surface drives revenue

Revenue came in at higher levels partly due to increase in Surface hardware by around $400 million and PC demand did fairly well, better than expected. Microsoft Corporation (NASDAQ:MSFT) continues to gain substantially from its commercial business, which forms 60% of total business.

Trends like a declining growth rate of PC demand and a slowdown in rate of customer shifts from PC to tablets and notebooks will bode well for Microsoft Corporation (NASDAQ:MSFT), believe analysts.

Analysts have increased their price target on the stock from $38 to $40 considering positive trend in results, and a new CEO might be appointed soon to take forward the culture of innovation and add to the value to shareholders wealth.

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