Microsoft MSFT is set to release fiscal first-quarter 2020 results on Oct 23 after market close. Being the world’s largest software maker, it is worth taking a look at the company’s fundamentals ahead of its results.
The stock has shed 0.7% over the past three months but outperformed the industry, which declined 3.6% in the said time frame. The outperformance might continue as the software leader has attractive fundamentals and has some chances of beating estimates (read: 4 Sector ETFs & Stocks to Bet on Ahead of Q3 Earnings).
Inside Our Methodology
Microsoft has a Zacks Rank #3 (Hold) and an Earnings ESP of +0.31%. According to our surprise prediction methodology, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
The stock has seen positive earnings estimate revision of a penny for the fiscal first-quarter over the past 60 days. The Zacks Consensus Estimate indicates substantial earnings growth of 9.65% from the year-ago quarter. Microsoft projects substantial year-over-year revenue growth of 10.83%. Its earnings track record is impressive, with the average four-quarter positive earnings surprise being 11.72%. The stock boasts a solid Growth Score of A and belongs to a top-ranked Zacks industry (top 21%).
The Zacks Consensus Estimate for average target price is $155.44 with 95% of the analysts having a Strong Buy or a Buy rating ahead of earnings. This represents nearly 13.1% upside from the current price (read: 6 Tech ETFs With Maximum Exposure to Microsoft).
What to Watch?
Investor focus will be on Azure growth, Windows sales trends and stock buybacks. The company has been successful in shifting its business toward Internet-based computing, which includes products such as Office 365, Dynamic 365 and the flagship Azure computing platform. This has become a major source of growth.
ETFs in Focus
Given this, ETFs having the highest allocation to this this tech giant will be in focus. These funds could be potential movers if Microsoft surprises the market (see: all the Technology ETFs here):
Select Sector SPDR Technology ETF XLK
This most-popular technology ETF follows the Technology Select Sector Index and has $22.5 billion in AUM. The fund charges 13 bps in fees per year from investors and trades in heavy volume of around 12.7 million shares a day on average. It holds about 68 securities in its basket, with Microsoft occupying the top position at 19.3%. XLK has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: ETF Market Outlook for Q4 2019).
iShares Dow Jones US Technology ETF IYW
This ETF tracks the Dow Jones U.S. Technology Capped Index, giving investors exposure to 153 technology stocks. Of these, Microsoft occupies the top position in the basket with 17.1% of the assets. The fund has AUM of $4.2 billion and charges 42 bps in fees and expenses. Volume is good as it exchanges nearly 135,000 shares a day. The fund has a Zacks ETF Rank #1 with a Medium risk outlook.
Vanguard Information Technology ETF VGT
This fund manages about $21.4 billion in its asset base and provides exposure to 325 technology stocks. It currently tracks the MSCI US Investable Market Information Technology 25/50 Index. Here MSFT occupies the second position with 16% share. The ETF has 0.10% in expense ratio, while volume is solid at nearly 570,000 shares. It has a Zacks ETF Rank #1 with a Medium risk outlook.
MSCI Information Technology Index ETF FTEC
This fund is home to 320 technology stocks with AUM of $2.6 billion. It follows the MSCI USA IMI Information Technology Index. MSFT is the second firm with a 15.7% allocation. The ETF has 0.08% in expense ratio, while volume is solid at 276,000 shares a day. It carries a Zacks ETF Rank #1 with a Medium risk outlook (read: ETFs to Buy on Phase 1 of U.S.-China Trade Deal).
iShares Evolved U.S. Technology ETF IETC
This is an active ETF, having accumulated $16.2 million in its asset base so far. It employs data science techniques to provide exposure to 223 technology stocks. Microsoft is the top firm with 15.7% allocation. IETC trades in a light volume of 8,000 shares and charges 18 bps in annual fees.
iShares Global Tech ETF IXN
This product provides broad exposure to technology stocks from around the world by tracking the S&P Global 1200 Information Technology Sector Index. Holding 116 stocks in its basket, Microsoft occupies the top spot with 15.2% share. American firms dominate the fund’s portfolio at 78.8%. The ETF has amassed $2.8 billion in its asset base but trades in a good volume of 76,000 shares a day on average. Expense ratio came in at 0.46%.
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