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Why Microsoft (MSFT) Could Beat Earnings Estimates Again

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Have you been searching for a stock that might be well-positioned to maintain its earnings-beat streak in its upcoming report? It is worth considering Microsoft (MSFT), which belongs to the Zacks Computer - Software industry.

When looking at the last two reports, this software maker has recorded a strong streak of surpassing earnings estimates. The company has topped estimates by 5.07%, on average, in the last two quarters.

For the last reported quarter, Microsoft came out with earnings of $2.22 per share versus the Zacks Consensus Estimate of $2.18 per share, representing a surprise of 1.83%. For the previous quarter, the company was expected to post earnings of $2.29 per share and it actually produced earnings of $2.48 per share, delivering a surprise of 8.30%.

Price and EPS Surprise

Thanks in part to this history, there has been a favorable change in earnings estimates for Microsoft lately. In fact, the Zacks Earnings ESP (Expected Surprise Prediction) for the stock is positive, which is a great indicator of an earnings beat, particularly when combined with its solid Zacks Rank.

Our research shows that stocks with the combination of a positive Earnings ESP and a Zacks Rank #3 (Hold) or better produce a positive surprise nearly 70% of the time. In other words, if you have 10 stocks with this combination, the number of stocks that beat the consensus estimate could be as high as seven.

The Zacks Earnings ESP compares the Most Accurate Estimate to the Zacks Consensus Estimate for the quarter; the Most Accurate Estimate is a version of the Zacks Consensus whose definition is related to change. The idea here is that analysts revising their estimates right before an earnings release have the latest information, which could potentially be more accurate than what they and others contributing to the consensus had predicted earlier.

Microsoft currently has an Earnings ESP of +0.11%, which suggests that analysts have recently become bullish on the company's earnings prospects. This positive Earnings ESP when combined with the stock's Zacks Rank #3 (Hold) indicates that another beat is possibly around the corner.

Investors should note, however, that a negative Earnings ESP reading is not indicative of an earnings miss, but a negative value does reduce the predictive power of this metric.

Many companies end up beating the consensus EPS estimate, though this is not the only reason why their shares gain. Additionally, some stocks may remain stable even if they end up missing the consensus estimate.

Because of this, it's really important to check a company's Earnings ESP ahead of its quarterly release to increase the odds of success. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.


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