Microsoft's Commercial Cloud Business Has BofA Bullish Ahead Of Earnings

Microsoft Corporation MSFT is scheduled to report fourth-quarter earnings after the close on Wednesday. 

Despite the negative impact of company layoffs on Microsoft’s on-premise server products and Office 365 seats, recent partner conversations remain bullish for the company’s commercial cloud business, which includes Azure, Office 365 and Teams, according to BofA Securities.

The Microsoft Analyst: Kash Rangan maintained a Buy rating on Microsoft with a $230 price target. 

The Microsoft Thesis: Microsoft’s partners continue to witness strong Azure momentum, driven by Windows Virtual Desktop, Teams, Office 365 and Microsoft 365 E5, Rangan said in a note. (See his track record here.)

This trend is likely to continue after the coronavirus with the acceleration of digital transformation and demand for cloud services, and partners see Microsoft as a key beneficiary of the coronavirus crisis, the analyst said. 

Referring to the upcoming fourth-quarter print, Rangan said Microsoft could beat BofA's estimate of $36.6 billion in revenue.

Even if Microsoft achieves sequential revenue growth of $500 million-$1 billion, it will report earnings 8-10 cents per share higher than the estimate of $1.34, the analyst said. 

BofA expects Microsoft to provide conservative guidance for fiscal 2021, but notes that comparisons will become easier in the back half of the year for commercial cloud bookings and revenues.

“Com Cloud rev run rate should hit about 50% revs in SepQ21 and drive sustainable growth and margin leverage.”

MSFT Price Action: Microsoft shares were up 2.82% at $208.60 at the time of publication Monday.

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