Microsoft: Strong Start To FY22 With Q1 Beating Guidance Significantly

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

Summary

• Microsoft reported strong Q1 FY22 results that were significantly better than its guidance, sending its shares up 2% in aftermarket trading.

• Q1 revenues grew 20% year-on-year excluding currency, and operational leverage and currency helped drive EPS growth to 25% in USD.

• All three segments grew year-on-year, and Q2 outlook implies high-teens growth in revenues and EBIT next quarter.

• Strong growth trends continued to be visible across key products in all of Microsoft's segments, supporting our growth expectations.

• With shares at $310.11, we expect a total return of 56% (13.1% annualized) by June 2025, in just under 4 years. Buy.

Introduction

We review our investment case on Microsoft after it released Q1 FY22 results overnight (on Tuesday, October 26). MSFT stock rose 2.0% in after-market trading after the results.

We initiated our Buy rating on Microsoft on Seeking Alpha in December 2020, though it has been a core holding in our portfolio since 2014. As of Tuesday's close, MSFT shares…