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Friday, 11/11/2022 4:03:12 PM

Friday, November 11, 2022 4:03:12 PM

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Growth Investors: Industry Analysts Just Upgraded Their Microsoft Corporation (NASDAQ:MSFT) Revenue Forecasts By 0.2%
By: Simply Wall St | November 11, 2022

Celebrations may be in order for Microsoft Corporation (NASDAQ:MSFT) shareholders, with the analysts delivering a significant upgrade to their statutory estimates for the company. The consensus estimated revenue numbers rose, with their view now clearly much more bullish on the company's business prospects. The market may be pricing in some blue sky too, with the share price gaining 13% to US$243 in the last 7 days. We'll be curious to see if these new estimates convince the market to lift the stock price higher still.

Following the upgrade, the most recent consensus for Microsoft from its 44 analysts is for revenues of US$213b in 2023 which, if met, would be an okay 4.9% increase on its sales over the past 12 months. Prior to the latest estimates, the analysts were forecasting revenues of US$213b in 2023. Overall it looks like Microsoft is performing in line with analyst expectations, given the analysts have updated their numbers and there's been no real change to this year's forecast following these updates.

There was no particular change to the consensus price target of US$297, with Microsoft's latest outlook seemingly not enough to result in a change of valuation. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. The most optimistic Microsoft analyst has a price target of US$411 per share, while the most pessimistic values it at US$234. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.

Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. It's pretty clear that there is an expectation that Microsoft's revenue growth will slow down substantially, with revenues to the end of 2023 expected to display 6.5% growth on an annualised basis. This is compared to a historical growth rate of 14% over the past five years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 9.4% per year. So it's pretty clear that, while revenue growth is expected to slow down, the wider industry is also expected to grow faster than Microsoft.

The Bottom Line

The most important thing to take away is that analysts reconfirmed their revenue estimates for this year, suggesting that the business is performing in line with market expectations. They're also anticipating slower revenue growth than the wider market. Given that analysts appear to be expecting substantial improvement in the sales pipeline, now could be the right time to take another look at Microsoft.

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