Can Microsoft (MSFT) Keep the Earnings Streak Alive? - Analyst Blog

We expect technology company Microsoft Corp. MSFT to beat expectations when it reports fiscal third-quarter 2014 results on Apr 24.

Why a Likely Positive Surprise?

Our proven model shows that Microsoft is likely to beat earnings because it has the right combination of two key ingredients.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +4.84%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.

Zacks Rank: Microsoft currently has a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1, 2 and 3 have a significantly higher chance of beating the earnings estimate. The Sell-rated stocks (Zacks Rank #4 and 5) should never be considered going into an earnings announcement. 

The combination of Microsoft's Zacks Rank #3 and an Earnings ESP of +4.84% makes us reasonably confident in looking for a positive earnings beat.

What Will Drive the Better-than-Expected Earnings?

Though Microsoft's consumer PC business continues to witness a decline, its new products, strong position in international markets, solid execution and cost control measures are expected to post a positive earnings surprise in the to-be-reported quarter.

Additionally, Microsoft's focus in the tablet segment, adoption of new products, growth in cloud and partnerships, such as GoDaddy should help drive growth. Also, the company's strong net cash position — around $60.97 billion in the last quarter — provides enough flexibility to pursue any growth strategy, whether by way of acquisitions or otherwise. The positive trend is seen in the trailing four-quarter average surprise of 4.18%.

Other Stocks to Consider

Microsoft is not the only firm looking up this earnings season. We also see likely earnings beats coming from these companies:

Entergy Corp. ETR, with Earnings ESP of +12.00% and a Zacks Rank #1 (Strong Buy).

Vertex Pharmaceuticals Inc. VRTX, with Earnings ESP of +13.16% and a Zacks Rank #1.

Align Technology Inc. ALGN, with Earnings ESP of +13.89% and a Zacks Rank #1.