Microsoft: Double-Digit Growth Again In Q3, Excluding Currency

(Preview) Company Update (MSFT US) (Buy)

Summary

• MSFT stock fell 7.7% after Q1 FY23 results last Wednesday and is now down 30% year-to-date and trading at 25.0x FY22 EPS.

• We believe investors misunderstood. While EPS growth was just 3%, this was largely due to currency; constant currency growth was 11%.

• Macro is weaker, hurting some areas like Windows OEM sales, but Cloud and other recurring revenue lines are still growing strong.

• Cost growth is expected to moderate materially, and FY23 outlook is for another year of double-digit constant-currency EBIT growth.

• With shares at $232.12, our forecasts indicate a total return of 110% (22.9% annualized) by June 2026. Buy.

Introduction

Microsoft Corporation stock lost 7.7% last Wednesday (October 26) following Q1 FY23 results and has not recovered, which means the share price is down 31% year-to-date.

Microsoft has been a core holding for us since 2014, and we initiated our Buy rating on Seeking Alpha in December 2020. After the recent correction, MSFT stock’s gain since our initiation sta…