Forget This Quarter, BMO More Concerned About Microsoft's June Results

BMO Capital’s Keith Bachman expects Microsoft Corporation MSFT to report robust March quarter results. However, the analyst expressed concerns regarding the June quarter.

Bachman reiterated an Outperform rating on the company, with a $58 price target.

June Quarter

The analyst expects the growth of Azure, and the commercial cloud segment in general, which accounts for 10 percent of Microsoft’s revenue, to weigh on margins in the June quarter.

“Moreover, we believe that Microsoft continues to make investments in the commercial cloud, so we don’t think margins will move substantially higher than the 46 percent reported in the December quarter,” Bachman stated.

Away From Handsets

Bachman expressed an increasingly positive view on the stock following the Microsoft Build event in San Francisco.

At the event, management emphasized the important of Microsoft applications not only across a various types of devices but also operating systems, including Android and iOS.

“We believe this is a positive, as we think it demonstrates a greater willingness to walk away from the company's handset business. As we stated previously, we think Microsoft is fighting a battle for a war that has already been lost in handsets,” Bachman pointed out.

The analyst believes selling fewer handsets would help the company to consolidate its margins and free cash flow.

The June quarter, FY2017 and FY2018 EPS estimates have been lowered.