As earnings season is fast approaching, analysts are coming out with their previews, and one common theme amongst the previews is that large multi-national companies will see a material hit to their revenues due to the strength of the U.S Dollar.
The U.S dollar, measured by the U.S Dollar Currency Index DXY, is up 11% year to date and almost 16% from a year ago. The strength of the U.S dollar means in theory that multi-national companies who collect payments in native currencies will now be generating 15% less U.S dollar revenue than a year ago after converting all sales into USD.
With that in mind, Microsoft (Nasdaq: MSFT) was the first on the list as BMO Capital Markets lowered their fiscal fourth quarter and full year 2022/2023 estimates due to the strength of the U.S dollar. As a result, the company cut its 12-month price target from $345 to $305 and reiterated its outperform rating on the stock.
Microsoft currently has 52 analysts covering the stock with an average 12-month price target of $344.00. Out of the 52 analysts, 19 have strong buy ratings, 30 have buy ratings, and the last three analysts have hold ratings on the stock. The street high sits at $426, while the lowest is at $252.
In the note, BMO believes that even after the update Microsoft provided to the market on June 2, in which they pre-emptively cut their fourth-quarter guidance due to the rising dollar, that, “FX headwinds have increased in the past several weeks as the dollar has continued to strengthen.”
They say that if you average the changes to the pound, euro, and yen versus the U.S dollar, it equates to roughly an additional 3% depreciation. With this, they have lowered their revenue growth from 12.8% year over year to 12.6% to $51.959 million, which cuts their EPS estimate to $2.27 from $2.35. They now expect cash flow per share to be $2.46, slightly down from $2.49.
BMO has also taken the time to lower its full-year 2023 estimates. They previously had revenues coming in at $227.194 million. Now they expect revenues to come in at $222.318 million, which is a roughly 12% increase year over year. They now expect earnings per share to be $10.40 and cash flow per share to be $9.86 for the fiscal full year 2023.
Lastly, BMO introduced their fiscal full year 2024 estimate, in which they believe that the current strength of the U.S dollar won’t be an issue. Below you can see their 2024 guidance.
Information for this briefing was found via Sedar and Refinitiv. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.