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Should You Buy Microsoft ETFs Ahead of its Earnings?

Microsoft MSFT is set to release fiscal first-quarter 2018 results on Oct 26 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.

The stock has been on an uptrend since the start of the start of the year, having returned about 27%. In the last three months, Microsoft’s returns outperformed the industry average by 80 bps. The upside is expected to continue as the software leader has attractive fundamentals and has some chances of beating estimates (read: FAANMG ETFs to Buy Ahead of Q3 Earnings).

Inside Our Methodology

Microsoft has a Zacks Rank #3 (Hold) and an Earnings ESP of -1.71%, indicating less chances of beating estimates this quarter. According to our surprise prediction methodology, a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 when combined with a positive Earnings ESP has chances of an earnings beat. A Zacks Rank #4 or 5 (Sell rated) stock is best avoided going into the earnings announcement, especially when the company is seeing negative estimate revisions. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

While the stock saw no earnings estimate revision over the past 30 days, its earnings surprise history is strong. It delivered an average positive earnings surprise of 15.16% over the past four quarters. Microsoft is expected to post earnings decline of 4.51% and revenue growth of 15.0% in the fiscal first quarter.

Further, it flaunts a solid Growth Style Score of B and a Value Style Score of C but its Momentum Style Score of F looks ugly. Plus, the industry outlook is encouraging with the Zacks Rank in the top 35%. As a result, an earnings beat could lead to higher share price (see: all the Technology ETFs here).

According to the analysts compiled by Zacks, Microsoft has an average target price of $78.93, with about 71% of the analysts having a Strong Buy or a Buy rating ahead of its earnings.

What’s in Store?

Once again, cloud business, particularly Azure, will remain the major growth driver of revenues. Azure comes under the Intelligent Cloud division, which is expected to generate 9.3% revenue growth in the fiscal first quarter according to our latest consensus estimate. Last quarter, Intelligent Cloud outpaced our estimates and posted a year-over-year growth rate of 10.8% (read: Why Cloud ETFs Could Soar Ahead).

ETFs on Radar

Given this, ETFs having the highest allocation to this this software leader will be in focus going into its earnings announcement. These funds could be potential movers if MSFT surprises the market:

iShares Dow Jones US Technology ETF IYW: Microsoft occupies the second position in the basket with 12.4% of assets. The fund has AUM of $3.7 billion while charging 44 bps in fees and expenses. The product has gained 30.4% in the year-to-date time frame and carries a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.

Select Sector SPDR Technology ETF XLK:  MSFT takes the second spot at 10.7% of the assets. The fund has $18.6 billion in AUM and charges 14 bps in fees per year. It has added 27.5% so far this year and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: 5 Overlooked Tech ETFs Crushing XLK).

MSCI Information Technology Index ETF FTEC: With AUM of $1.2 billion, the ETF has gained 30.9% and charges 0.08% in expense ratio. MSFT is the second firm with 9.6% allocation. The fund has a Zacks ETF Rank #2 with a Medium risk outlook.

Vanguard Information Technology ETF VGT: This fund manages about $15.4 billion in its asset base and has 0.10% in expense ratio. Microsoft takes the third spot with a 9.4% share. The ETF is up 31% in the same time frame and has a Zacks ETF Rank #2 with a Medium risk outlook.

iShares Morningstar Large-Cap Growth ETF JKE: This product has amassed $825.2 million in its asset base with expense ratio of 0.25%. Microsoft occupies the top position at 9.05% share. JKE gained 23.9% and has a Zacks ETF Rank #1 with a Medium risk outlook.

iShares Global Tech ETF IXN: Microsoft takes the second spot with 8.9% share. The ETF has amassed $1.5 billion in its asset base and charges 48 bps in annual fees. It is up 35.4% so far this year.

iShares North American Tech-Software ETF IGV: With AUM of $1.1 billion, Microsoft occupies the third spot at 8.7% of total assets. IGV charges 48 bps in annual fees and has surged 40.6% this year. It has a Zacks ETF Rank #1 with a High risk outlook (read: Top-Ranked ETFs That More Than Doubled the S&P 500 This Year).

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Microsoft Corporation (MSFT): Free Stock Analysis Report
SPDR-TECH SELS (XLK): ETF Research Reports
FID-INFOTEC (FTEC): ETF Research Reports
ISHARS-NA TEC-S (IGV): ETF Research Reports
VIPERS-INFO TEC (VGT): ETF Research Reports
ISHARS-US TECH (IYW): ETF Research Reports
ISHARS-GLB TECH (IXN): ETF Research Reports
ISHARS-MO LC GR (JKE): ETF Research Reports
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