Microsoft Corporation (MSFT) Stock: Ride the Raucous Earnings Reaction

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Tech giant and influential Nasdaq constituent Microsoft Corporation (NASDAQ:MSFT) reports earnings Thursday night. So what’s in store for Microsoft stock investors?

Microsoft Corporation (MSFT) Stock: Ride the Raucous Earnings Reaction
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Let’s take a look at recent announcements for MSFT, analyst expectations, the price chart and what, if anything, the Microsoft stock options market is suggesting for bulls, bears and less-directionally-motivated traders.

Microsoft Stock Earnings Picture

Ahead of Microsoft’s earnings release analysts are forecasting profits of 70 cents per share. Range estimates are from 65 cents to 75 cents per share.

Street expectations imply an increase in profits of nearly 13% from the year-ago period. Income is expected to slip sequentially from Q2’s take of 83 cents — the first quarterly decline since the same period last year.

An unofficial whisper forecast calls for stronger profits of 72 cents and could influence how investors react to MSFT following its earnings release, if those heightened expectations aren’t met.

On the sales side, MSFT is expected to grow revenues by 7.2% from last year’s, same quarter result of $22.1 billion. Sequentially, and as with profits, a bit of softness is forecast with sales pegged to come in at $23.7 billion versus Q2’s $26.1 billion.

Beyond the top- and bottom-line numbers investors will be focused on Microsoft’s cloud business, the company’s productivity and business processes segment which includes Office 365, how LinkedIn’s contributions are shaping up, as well as fiscal 2018 and gross margin guidance.

Microsoft Analyst Community

Wall Street is mostly bullish on MSFT stock. Among 32 polled analysts, 75% have “buy” recommendations, one firm rates shares as “outperform” and 10 maintain “hold” ratings.

Analyst forecasts for MSFT stock show a median 12-month target price of $71. Compared to MSFT stock’s current price of $67.83 this implies growth of 4.7%. At the same time, range views are quite varied with a low of $45 and a high of $90.

Microsoft Stock Short-Term Trading Record

Microsoft has established a consistent pattern of beating Street profit views. Over the past 12 quarters, the tech stalwart has topped forecasts on 10 occasions, or 83% of the time. The decent results haven’t gone unnoticed, as investors reacted mostly bullish in the immediate aftermath of the earnings report.

Working backward and looking at what shares of Microsoft have done in recent quarters, MSFT stock has moved 2.36%, 4.22%, 5.32%, -7.17%, 5.82% and 10.08% on a close-to-close basis.

The net reaction in Microsoft shares has produced an average gain of 2.11% with variability of 5.35% based on a one standard deviation reading. Combining the two metrics and the recent price history has resulted in an estimated range of -3.24% to a gain of 7.46% and an obvious feather in the caps of bulls.

MSFT stock’s seven-day stock performance tracks similarly, but with a bit more downside risk for investors. An average gain of 1.77% for the period coupled with variability of 7.63% yields an estimated range of -5.86% to 9.40%.

Microsoft Stock Weekly Chart


Click to Enlarge
Source: Charts by TradingView

Following 2015’s and much of 2016’s larger basing patterns, Microsoft has turned the corner since clearing its former all-time highs set back in 1999.

Currently, with MSFT stock forming a bullish price gap above its upper Bollinger Band in front of earnings, profit-taking becomes a much more likely possibility — and particularly so, if the crowd’s more demanding whisper numbers aren’t met.

Bottom line, any potential weakness is likely an opportunity to buy based on the current technical situation in MSFT stock. I’ll remind investors to refrain from partying like it’s 1999, however, as we know how long and brutal that comeback has been.

Microsoft Stock Options Pricing

Behind the scenes, implied and underlying volatility have widened greatly over the past month. MSFT stock’s bullish and tighter price tenacity has pushed statistical readings near 52-week and multi-year lows.

Conversely, prices paid for Microsoft options has spiked higher and toward range highs in keeping with the past couple of earnings reports. Options traders can expect a massive narrowing of that spread following Thursday night’s report.

Looking a bit closer at prices and Microsoft shares at $67.92 the at-the-money April $68 straddle market points to a 68% chance MSFT will remain within an approximate price range of $65 to $71 into Friday’s expiration. The math behind this calculation is based on implied volatility of 49% with three trading sessions remaining.

The April contract is the purest play on MSFT as there’s less opportunity for the reaction by traders to be impacted by broader market noise. Of course, for those traders positioning in these very nearby contracts, timing, as they say, is everything.

The expected dollar move up or down works out to wiggle room of about +/-4.4% in Microsoft stock by Friday’s close. In weighing both recent one and seven-day reactions, the leeway being priced in by options traders is quite normal. Based on recent past events, the wide range also reflects an appreciation for continued volatility with Thursday’s release.

Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.

The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


Article printed from InvestorPlace Media, https://investorplace.com/2017/04/microsoft-corporation-msft-stock-ride-the-raucous-earnings-reaction/.

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