Analysts Positive On Microsoft Shares Ahead of Earnings

Microsft (NASDAQ: MSFT) is set to post earnings for its latest quarter after the close on Tuesday, and investors will be hoping for a share price boost after a decline of the last year.

Microsoft, which recently announced it was laying off around 10,000 employees, has seen its share price fall 22% in the last 12 months and just over 1% in 2023, trading just above the $240 mark.

Ahead of Tuesday’s earnings, analysts at Evercore ISI, Citi, and Cowen provided their thoughts and adjusted their price targets on Microsoft.

Last week, Evercore ISI analyst Kirk Materne told investors in a note that he believes Microsoft’s headcount reduction and cost savings actions demonstrate how the company can dynamically adjust its cost base to preserve EPS and free cash flow even in a more difficult macro backdrop.

In addition, Materne, who cut the firm’s price target on Microsoft to $280 from $300, explained that he continues to believe Microsoft will come out of this downturn in a stronger position with a more streamlined cost structure. The analyst maintained an Outperform rating on the stock.

Meanwhile, focusing specifically on Microsoft’s earnings, Citi analyst Tyler Radke said in a research note that the firm still likes Microsoft, despite the challenging Q2 setup.

The analyst lowered the firm's price target on Microsoft to $280 from $282, maintaining a Buy rating on the shares. Radke acknowledged that challenges might continue for Microsoft in its fiscal Q2 based on increasing cloud optimizations, weakening IT budgets, and weaker results from Citi's reseller survey and mixed channel checks.

The analyst also expressed that Microsoft’s recent commentary and layoffs announcement also suggests a more challenging demand environment, although not worse than most peers. Even so, Radke cut his estimates, despite modest currency tailwinds, factoring in a weaker PC market and slower Azure consumption. However, despite the headwinds and an expected challenging Q2 setup, he still likes the stock at current levels, stating Microsoft's valuation is at near multi-year lows versus the S&P 500.

Finally, Cowen also cut its price target on Microsoft last week, with analyst Derrick Wood reducing it to $280 from $285 ahead of its upcoming earnings release.

Wood, who maintained an Outperform rating on the stock, wrote in his research note to clients that softening demand conditions may create risks to guidance. In addition, he said Microsoft’s restructuring announcement has resulted in him cutting 2023 earnings by roughly $0.10 per share, but there is “little change to FY24.”