At 52-week highs, Microsoft (NASDAQ:MSFT) continues to be the darling tech stock for 2019. Its earnings report on May 1 will likely reaffirm the strong profits from cloud software. Hardware sales may come in strong but investors will care more about cloud revenue growth. What should investors expect Microsoft’s earnings report to look like?
Microsoft is expected to report earnings of $1.00 in the seasonally slower period. The company’s enterprise software and cloud software (mainly Office 365) will probably come in stronger than expected. On the hardware front, the Surface refresh will raise ASP, although total sales may come in weak this period. Microsoft still needs to convince customers that the latest Surface refresh is a better option than Apple’s (NASDAQ:AAPL) Macbook Pro and iPad refresh. Still, Surface Book and Surface tablets are highly appealing to the business customer.
Valuation
MSFT stock does not trade at a favorable valuation of close to 30 times earnings. Still, the profit margin from Azure and enterprise cloud software justifies the stock’s multiples. Given that shares are at 52-week highs, investors may want to wait for a pullback or profit-taking following the earnings report before starting a position in Microsoft.
