Upcoming Earnings: Microsoft Close To All Time Highs Ahead Of Thursday's Results

Over the next few weeks, the biggest companies in the tech sector are slated to report earnings. One of the first ones up is Microsoft Corporation MSFT, which is scheduled to release results after market close on Thursday, July 19. 

The stock has steadily climbed higher over the past several months and is up about 22 percent year to date, slightly below its recent all-time high of $106.50 on July 17. 

Expectations are on the high end for tomorrow’s report, evidenced by the run-up in the stock and a number of analysts upping their price targets over the past few months.     

For the quarter, MSFT is expected to report adjusted EPS of $1.07 on revenue of $29.2 billion, according to third-party consensus analyst estimates. In the prior-year quarter, the company earned $0.98 on revenue of $24.7 billion. MSFT has beat earnings estimates in each of the past 8 quarters. 

As has been the case for some time, the company’s cloud products and services are the primary focus among analysts since they’ve been delivering MSFT’s fastest growth. When MSFT last reported, revenue in Office 365 Commercial was up 42 percent year over year, Dynamics 365 was up 65 percent and Azure was up 93 percent. 

MSFT also just announced it would acquire software development GitHub for $7.5 billion, with the deal expected to close later this year. On tomorrow’s earnings call, management might provide some commentary about how they envision GitHub folding into the rest of their cloud businesses.

Positive PC trends are a factor that some analysts think could have helped boost sales across a variety of MSFT products and services this quarter. Research firm IDC estimates that traditional PC shipments totaled 62.3 million units in the second quarter, up 2.7 percent year over year and the fastest growth since 2012. 

One thing that analysts have said they are expecting to weigh on this quarter’s results is a stronger U.S. dollar during the second quarter compared to the first. Several multinational tech companies have warned in the last few weeks that this will negatively impact their Q2 results, after it helped provide a boost in Q1.  

MICROSOFT IN 2018. Heading into its earnings report, MSFT is trading pretty close to its all-time high of $106.50 it hit intraday on July 17. So far this year, the stock is up 22.17 percent, outperforming both the S&P 500’s 4.36 percent return and the Nasdaq 100’s 13.53 percent increase. Chart source: thinkorswim^® by TD Ameritrade.  Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Microsoft Trading Activity

Around the upcoming earnings release, options traders have priced in about a 3.2 percent stock move in either direction, according to the Market Maker Move indicator on the thinkorswim® platform. Implied volatility was at the 55th percentile as of this morning. 

In short-term trading at the July 20 expiration, calls have been active at the 105 and 106 strike prices, while puts have been active at the 103 and 105 strikes. 

Looking at next month’s August 17 expiration, volume has been much higher on the call side and mostly at the 105 and 110 strikes. There hasn’t been much trading on the put side that stands out, with a smattering of activity spread out between the 95 and 105 strikes. 

So far today, call volume has been outpacing puts by more than 4 to 1. At noon, there were about 92,000 calls traded versus 22,000 puts overall during Wednesday’s session. 

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.

Next up in Earnings

General Electric Company GE wraps up the week and reports before market open on Friday, July 20. 

The next two weeks also includes a stretch of reports from some of the biggest companies in the tech sector. Alphabet inc. GOOGL GOOG reports after market close Monday, July 23; Facebook, Inc. FB reports after market close Wednesday, July 25; Amazon.com, Inc. AMZN reports after the close Thursday, July 26; and Apple Inc. AAPL reports after the close Tuesday, July 31. 

Information from TDA is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade.