Microsoft MSFT is set to release fiscal fourth-quarter 2020 results on Jul 22 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.
Over the past three months, the stock has gained 26.1%, underperforming the industry growth of 28.6%. The solid run is expected to continue if the software leader beats estimates (see: all the Technology ETFs here).
Inside Our Methodology
Microsoft has a Zacks Rank #3 (Hold) and an Earnings ESP of -4.65%. 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 saw negative earnings estimate revision of a penny for the fiscal fourth quarter over the past 7 days. The Zacks Consensus Estimate indicates substantial earnings growth of 1.46% from the year-ago quarter. Microsoft projects substantial year-over-year revenue growth of 8.51%. Its earnings track is impressive, with the last four-quarter positive earnings surprise being 12.06%, on average. The stock boasts a solid Growth Score of B and belongs to a top-ranked Zacks industry (top 43%).
Microsoft Corporation Price, Consensus and EPS Surprise
Microsoft Corporation price-consensus-eps-surprise-chart | Microsoft Corporation Quote
The Zacks Consensus Estimate for average target price is $209.36 with nearly 96% of the analysts having a Strong Buy or a Buy rating ahead of earnings.
What to Watch?
Investors will continue to watch cloud-computing sales with the acceleration of digital transformation and demand for cloud services even in the post coronavirus pandemic. Microsoft’s CEO Satya Nadella said the COVID-19 pandemic brought “two years’ worth of digital transformation in two months” on the company’s last conference call (read: Make the Most of the Big Tech Rally With These ETFs).
Additionally, analysts have grown increasingly optimistic on Microsoft with many of them raising the target price ahead of the earnings announcement.
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.
Select Sector SPDR Technology ETF XLK
This most-popular technology ETF follows the Technology Select Sector Index and has $32.4 billion in AUM. The fund charges 13 bps in fees per year from investors and trades in heavy volume of around 16.9 million shares a day on average. It holds about 71 securities in its basket, with Microsoft occupying the top position at 21.7%. XLK has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: 5 Best-Performing Stocks in Ultra-Popular Tech ETF (XLK)).
iShares Dow Jones US Technology ETF IYW
This ETF tracks the Dow Jones U.S. Technology Capped Index, giving investors exposure to 161 technology stocks. Of these, Microsoft occupies the top position in the basket with 19% of the assets. The fund has AUM of $5.8 billion and charges 42 bps in fees and expenses. Volume is good as it exchanges nearly 195,000 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 $33.3 billion in its asset base and provides exposure to 330 technology stocks. It currently tracks the MSCI US Investable Market Information Technology 25/50 Index. Here MSFT occupies the second position with 18% share. The ETF has 0.10% in expense ratio, while volume is solid at nearly 1.1 million shares. It has a Zacks ETF Rank #1 with a Medium risk outlook.
MSCI Information Technology Index ETF FTEC
This fund is home to 314 technology stocks with AUM of $4.2 billion. It follows the MSCI USA IMI Information Technology Index. MSFT is the second firm with 17.4% allocation. The ETF has 0.08% in expense ratio, while volume is solid at 638,000 shares a day. It carries a Zacks ETF Rank #1 with a Medium risk outlook (read: Top-Ranked ETFs That Crushed the Market in 1H).
iShares Evolved U.S. Technology ETF IETC
This is an active ETF, having accumulated $77.3 million in its asset base. It employs data science techniques to provide exposure to 227 technology stocks. Microsoft is the top firm with 17% allocation. IETC trades in a light volume of 38,000 shares and charges 18 bps in annual fees.
iShares Global Tech ETF IXN
This product provides exposure to electronics, computer software and hardware, and informational technology companies by tracking the S&P Global 1200 Information Technology Sector Index. Holding 119 stocks in its basket, Microsoft occupies the top spot with 17.4% share. The ETF has amassed $4 billion in its asset base but trades in a good volume of 119,000 shares a day on average. Expense ratio is 0.46%.
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