Microsoft is scheduled to release its next earnings report on Oct. 22, and on average, analysts are expecting the company to post earnings of 59 cents per share and $20.88 billion in revenue. The third quarter earnings season has only just begun, and already it’s becoming apparent that it will be a rocky road.

Microsoft Earnings Preview: Looking For A Beat And Raise

Microsoft benefits from shifting sentiment

UBS analyst Brent Thill noted that Microsoft shares have climbed about 6% over the last three months on the back of shifting sentiment as investors have begun to favor lower-beta and high-quality names and spurn high-beta stocks. Despite this shift and the small appreciation in Microsoft stock, the company’s shares have had a difficult time moving up out of the $40 to $50 range, and Thill thinks investors are still looking for the bottom.

In each of the last few quarters, estimates have fallen, and so now Wall Street is debating whether management will be able to switch from beat and lower to beat and raise.

What to expect in Microsoft’s earnings report

Thill is expecting Microsoft to beat revenue estimates bit just barely miss earnings estimates. He’s modeling revenue of $21.3 billion and earnings of 58 cents per share for the September quarter. He doesn’t think Wall Street is pricing “another big number cut” into Microsoft shares, which could suggest downside.

The analyst also noted that Windows 10 is on more than 110 million devices, and new devices mean that Microsoft’s opportunity in this area is expanding. Among the new products that have been unveiled recently are the 13.5-inch Surface Book, which is twice as powerful as the MacBook Pro. It’s priced at $1,499 and becomes available on Oct. 26.

The Surface Pro 4 is also new, and it’s 30% more powerful than its predecessor and 50% more powerful than the MacBook Air. It starts out at a price of $899. Microsoft also unveiled two new flagship smartphones, the Lumia 950 and Lumia 950 XL. They’re the first Windows 10 phones and feature Continuum and a PC experience through a dock via a smartphone. They’re priced at $549 and $649 respectively.

And finally, there’s the Microsoft Band 2, which now has a curved display and Cortana. It’s priced at $249 and becomes available on Oct. 30.

Microsoft’s new reporting structure

Microsoft also recently announced that it is making changes in the structure of its financial reporting to provide a better alignment with the way management looks at it. Thill thinks management has “done an excellent job articulating the vision and focusing the business” as they make the transition from a software-focused company to a cloud-focused company.

The analyst has a few questions about the new reporting structure. He noted that the Personal Computing business is the biggest division, making up about 46% of Microsoft’s total revenues, but it also bears the lowest margins. As a result, he wants to know the levers that could be used to move margins above 12%.

He also has questions about the Productivity and Business Processes business, which has the highest margin at about 50% but saw a 2% decline in fiscal 2015. He wants to know whether the segment’s high margins are sustainable and what will improve growth.

And third, Thill notes that Microsoft has great opportunities in the Intelligent Cloud business with Azure, which is now in second place in the Infrastructure as a Service business. Because of this strength, he wants to know how much margins in the segment can expand.

Microsoft a strong value story

The UBS analyst says Microsoft is one of his “favorite value stories,” although he noted that the company has some hurdles to overcome in the near term, like the difficult comparisons for the first quarter, although that gets easier in the second half. Going into next week’s earnings report, Thill is maintaining his $52 per share price target and Buy rating on Microsoft.