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Microsoft Corporation (NASDAQ:MSFT) Cloud “Playing out Successfully”

Microsoft Corporation Nasdaq:msft

Microsoft Corporation  will report its earnings for the three months through June after the market closes on Tuesday July 21. The firm’s numbers will be all about the cloud this time around as Windows 10 is pushed to the side by those forecasting the future of Microsoft. Karl Keirstead of Deutsche Bank is positive on the stock and believes that the cloud transition is working.

Microsoft Corporation Nasdaq:msft

Keirstead, in a report published on July 17, said that the “cloud transition story is playing out successfully and will lift sentiment for some time.” He rates the firm at Buy with a price target of $55. Shares in the firm have gained more than 9% in the three months heading into earnings.

Looking to the cloud at Microsoft

Commercial Cloud sales make up just 7 percent of the total at Microsoft , but the margin on those services is huge, and the market is looking for the mix to expand quickly. Keirstead says that the sales team at Redmond, Washington, is looking to drive sales with incentives for its partners and bundling “more cloud services around Office 365.”

It’s the cloud business that most of Wall Street will be focused on when earnings arrive after the market closes in New York on Tuesday. It may be a small part of the firm’s overall sales right now, but it’s already the most central part of the new Microsoft for traders. Sales more than doubled year over year in the first quarter, and similar growth will be looked for this time around.

With so much weakness being seen in other parts of the firm’s business, there’s little wonder why Wall Street is looking to the cloud in order to bolster the value of the firm’s stock.

Weakness already priced in at Microsoft

Microsoft is going to feel the weakness in the PC market this time around, but it seems that those trading shares have already priced that into the firm’s stock. Shares of Microsoft have slumped since April and are still far from highs set in November of 2014.

Frederick Grieb of Nomura securities echoed that call in a July 15 report. He says that “the market is well aware of the impact from weak PC sales.” Mr. Grieb has a Buy rating on the firm and a price target of $55.

The firm has done its best to shore up its weakest parts in the three months through June. GAAP earnings are going to be very low this time around because of a  $7.6bn charge the firm took from its closure of much of the Nokia hardware division it acquired last year.

Microsoft also got rid of other key segments during the period. It sold its display ads business to AOL, and also offloaded part of its mapping division to Uber. Those moves were announced on June 29, just before the end of the quarter, so they should be recognized in the earnings report released on Tuesday afternoon.

The median price target on Wall Street sits at $52, with the low coming in at $37 and the high hitting $60.

Analysts are, by consensus, looking for earnings of 56 cents per share from Microsoft on Tuesday. Sales are set to hit $22bn by the same forecast. Those numbers don’t include one-off charges. Today’s report is likely to be full of them, but the market has most priced in.

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