Microsoft Corporation MSFT is scheduled to report its fiscal-year third-quarter results after the market closes on Tuesday. Ahead of the event, an analyst at Piper Sandler sounded out downside risks but retained his bullish bias.
The Microsoft Analyst: Brent Bracelin maintained an Overweight rating and $352 price target on Microsoft shares.
The Microsoft Thesis: Durability of the Microsoft model will be on full display next week, helped by the increase in the cloud mix shift to 48% of the total revenues from 41% in 2021, analyst Bracelin said.
The analyst sees a positive bias for Office365, where new productivity, collaboration and security features continue to be layered in; this is particularly important as labor remains one of the highest costs for most large enterprises, he added.
With the management guiding for a sequential improvement in Azure, there is little margin for error for the business, Bracelin said. The analyst expects commercial bookings to continue to see a moderation in growth.
While noting that International Business Machines Corporation. IBM raised its forex headwind expectations for 2022 from 2% to 3%-4%, the analyst said he sees forex risk to Microsoft's guidance too. Both companies have similar international exposure, he added.
Every 1% of forex headwind could drag quarterly revenue by over $400 million, the analyst estimates. There is little margin for error, given the consensus long bias on Microsoft, coupled with increasing global risks, he said.
"We maintain at Overweight, but acknowledge a mixed earnings report and FX adjusted outlook might not be enough to spark a material rally," Bracelin said.
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