Goldman On Microsoft Ahead Of Q3 Results: The Song Remains The Same

Microsoft Corporation MSFT is scheduled to report its F3Q16 results on April 21. Goldman Sachs’ Heather Bellini maintained a Neutral rating for the company, with a price target of $57.

Analyst Heather Bellini expects Microsoft to report its F3Q16 revenue at $22.1bn, representing 2 percent y/y growth, and in-line with consensus expectations. The company is likely to report non-GAAP EPS of $0.64, in-line with the Street.

Bellini has modelled a negative currency impact of about 350bps to Microsoft’s F3Q16 revenue, which is about 50bps less than the company’s guidance of around 400bps.

Looking Ahead

The analyst expects Microsoft’s F4Q16 revenue at $22.1bn, flat y/y, and non-GAAP EPS at $0.59. Both these are below the consensus expectation of revenue of $23.1bn, representing 4 percent y/y growth, and an EPS of $0.67.

“The biggest delta between our estimates and the Street is PBP revenue. We believe consensus is underestimating the yoy decline in the company’s Office Transactional and Annuity business as these customers migrate to Office 365,” Bellini wrote.

Microsoft has been restructuring its Phone Hardware segment for several years. Moreover, it no longer enjoys a positive currency impact of ~$250-$400mn per quarter. Therefore, opex is likely to being rising “slightly faster than the last two years,” the analyst said, and expects management to guide to FY17 opex growth of 1-3 percent.

The EPS estimates for FY17 and FY18 have been reduced from $2.91 to $2.88 and from $3.22 to $3.19, respectively.