By Sam Boughedda
In a note to clients Monday, BofA analyst Brad Sills said he expects Microsoft's (NASDAQ:MSFT) "PC/Windows softness to largely offset CC Azure & Office strength" when the company reports fiscal fourth-quarter financial results after the close on Tuesday, July 26.
BofA expects Microsoft revenue to be "largely in line" with their "$52.3bn (+13% y/y, +16% cc)" estimate, with expected Azure and O365 upside offset by PC/Windows weakness.
"Partner commentary suggests solid sustained workload migration to the Azure cloud platform from pull-through across Power Apps, Dynamics, Server Annuity/hybrid and Office 365. We noted incremental strength from security/active directory," said Sills. "We look for cc Azure growth of 48%, versus our base estimate for 46%. We estimate a -3% to -4% point FX impact, translating to 44% - 45% reported Azure growth, exceeding our updated 43% estimate in early June. This implies $100mn to $200 mn upside to our $21.05bn IC (+21% y/y, +24% cc) estimate."
The analyst added that the firm is comfortable with its "O365 subscriber growth estimate of 14%, decelerating 2% points from 16% in Q3 on a 2% point tougher compare (17% in Q4FY21 vs 15% in Q3FY21)."
"We believe expectations for a muted Q4 are largely priced into the shares, with the stock trading at 22x C23E FCF," added Sills, who maintained a Buy and top pick rating on the stock with a $345 per share price target.