Microsoft: Strong Q3 FY21, Post-COVID Growth Will Be Fine (Preview)

Company Update (MSFT US) (Buy)

Summary

• Microsoft shares fell 3% despite reporting double-digit year-on-year growth in revenues and earnings for its Q3 FY21 overnight.

• Q3 growth was broad-based, with double-digit growth in all three segments, and continuing strong trends in all core products.

• Forward guidance implies another strong quarter in Q4, which would give FY21 a 33% growth in net income at mid-point.

• We believe investors are concerned about OpEx and revenue growth normalizing after COVID, but Microsoft has always been a great business.

• With shares at $254, we expect an exit price of $400 and a total return of 62% (16.6% annualized) by June 2024, in just under 4 years. Buy.

Why is Microsoft Stock Falling?

Microsoft reported results for Q3 FY21 (January-March of 2021) after markets closed on Tuesday (April 27). Shares fell in after-market trading, and are currently down 3% (as of 12 noon EST), at just under $254.

We have originally initiated a Buy rating on Microsoft stock in December 2020. Since then shares have gain…