It’s earnings time for Microsoft Corporation (NASDAQ:MSFT) once again, and that means potentially big gains for Microsoft stock traders. The software giant steps into the earnings confessional after the close of trading today. Bulls, get ready, because the recent market selloff has MSFT stock poised to run higher following the report.
Diving right into the numbers, Microsoft is expected to post a profit of 86 cents per share. Last year, earnings came in at 80 cents per share. Revenue is expected to rise 8.9% to $28.39 billion.
As always, keeps your eyes on Microsoft’s Azure and web services revenue. Sales from these units have provided considerable growth in the past year, and should continue to drive Microsoft stock going forward.
Click to Enlarge Sentiment is quite bullish on MSFT ahead of tonight’s report. For one, the whisper number comes in four cents higher than the consensus at 90 cents per share. Analysts have also doled out 27 “buy” ratings, compared to six “holds” and just one “sell.” The 12-month price target of $98.55, however, leaves room for a boost or two from the brokerage community.
Technically speaking, Microsoft stock is in a strong long-term bull rally. The shares have enjoyed the support of their 20-day and 50-day moving averages throughout. Currently, MSFT has pulled back from highs near $95.50, with broad-market selling pressure taking its toll this week.
However, this pullback is a buying opportunity for Microsoft stock bulls. The shares are at support near $92.50 after working off an overbought condition. As a result, MSFT is ready to run following a positive report later this afternoon.
As for Microsoft stock options traders, sentiment isn’t nearly as bullish as in past earnings reports. The February put/call open interest ratio arrives at 0.79. This ratio is well above the reading of 0.42 ahead of Microsoft’s last quarterly report. But that caution should spell buying power as the company once again puts up solid numbers.
Implieds, meanwhile are pricing in a potential post earnings move of about 5.2% for Microsoft stock. This places the upper bound at $98, with the lower bound coming in near $88.
2 Trades for Microsoft Stock
Call Spread: Those looking to bet bullish on Microsoft stock ahead of earnings might want to consider a Feb $95/$96 bull call spread. At last check, this spread was offered at just 25 cents, or $25 per pair of contracts. Breakeven lies at $95.25, while a maximum profit of 75 cents, or $75 per pair of contracts — a potential return of 200% — is possible if MSFT stock closes at or above $96 when February options expire.
Put Sell: If a more neutral-to-bullish stance is more your speed, then a Feb $87.50 put sell position has an excellent chance at finishing out of the money. At last check, this put was bid at 98 cents, or $98 per contract. On the upside, traders will keep the initial premium received as long as Microsoft stock closes above $87.50 when Feb options expire.
The downside is that should MSFT trades below $87.50 ahead of expiration, traders could be assigned 100 shares for each sold put at a cost of $87.50 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.