FBR analyst maintains 'Outperform' rating on Microsoft ahead of F4Q15 results

It’s quarterly results time ladies and gentlemen. Over the next couple of weeks, a plethora of companies will be forced by regulatory bodies and interested investors to crack open their books and explain where money is coming in and where it is going out. For investors, quarterly results are a time to move money in positive and negative directions. There is a delicate dance publicly traded companies engage in when reporting their quarterly financials. A dance between Chief Financial Officers (CFO) and skittish investors is as unpredictable as the weather. For fair weather investors, shortened reports and quick performance sheets help with day to day trades.

Fortunately for Microsoft, a published report from FBR Capital Markets analyst Daniel Ives and caught by Benzinga, is making a strong case in favor of the software company. In Ives’ Friday report, he suggests that Microsoft is maintaining an ‘Outperforming’ rating. Ives also sets a stock price target of $53 (US) which is an increase from the company’s current spot at $46.62 (US). This news comes just days before Microsoft is scheduled to report its Fiscal 4Q results for 2015 — on July 21st. The crux of Ives’ report leans on a $7.6 billion dollar Nokia write-down Microsoft is expected to report. While Ives expects Microsoft to report $22 billion dollars in total revenue for the quarter, other estimates have Microsoft’s GAAP EPS estimates dropping from $0.56 to $0.45 respectively, due to the Nokia write-down. 

For the few still scratching their heads at the news, Microsoft’s CEO Satya Nadella dropped the news earlier in the month about ‘tough choices’ and Windows Mobile; Ives’ report sums up Nadella’s intentions beautifully. Ives likens the news about Nokia to ripping off a Band-Aid. As some have argued, Microsoft could have sustained a few more quarters of Nokia’s drain to ride out a possible resurgence in mobile. However, when reporting the numbers, Microsoft’s quick disposal of Nokia as well as focusing on revenue generating software puts Microsoft onto a very healthy financial path.

Not only will Microsoft be affected by the Nokia fiasco, but a Windows 10 revenue recognition policy is bringing Microsoft’s FY16 revenue down from an estimated $96.6 billion to a mere $88.5 billion. Despite the widespread contractions, Ives stands by Microsoft’s recent decisions and points to F4Q15 as being “another important step in the right direction.” Specifically Ive’s believes, “Overall, with Nadella making the tough but smart move, in our opinion, to ‘rip off the Band-Aid’ in terms of the Nokia acquisition/write-down, we believe Microsoft’s laser-focus on software versus hardware with a massive product cycle in its back pocket leaves it well positioned to enter the ‘golden age’ of cloud computing with Windows 10 front and center as a major potential catalyst.”

Similar to most stock analysts who attempt to judge the future earning potential of a company, Ives believes that Microsoft’s focus on the cloud with Azure puts much of Microsoft’s brighter days ahead of it. Microsoft’s commercial cloud businesses in on an annual run-rate trajectory of $6 billion dollars. Ives’ report reflects positive gains from Microsoft in the future as more and more businesses show a solid need for cloud-based options.