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Microsoft Corp. (MSFT - Analyst Report) is set to report second quarter of fiscal 2013 results on Jan 24. Last quarter, it posted a -7.02% negative surprise. Let’s see how things are shaping up for this announcement.

Growth Factors this Past Quarter

Microsoft’s sales growth rates in the fiscal first quarter of 2013 were lower than the fourth quarter as well as the year-ago period due to delay in purchases ahead of the Windows 8 release in Oct. Lower Windows and Office sales also hurt results in the quarter, which can be attributed to weak PC sales.

The quarter was also weak for Microsoft in terms of margin expansion. We believe that unfavorable mix and increased expenditure on the launch of various new products will continue to hurt margins.

Just like the PC makers, Microsoft is battling the slump in PC sales caused by the sluggish economy. In addition, tablets from Apple Inc. (AAPL - Analyst Report) and Google Inc. have been cannibalizing PC market sales, leading to further deterioration in its core market. We believe that Microsoft will see notable success this year only if PC sales start to grow again at normal rates or the company grabs opportunities in the cloud computing field. To compete in the growing tablet space, the company has come out with its own offering - the Surface tablet. Reception for the company's Surface RT tablet was relatively lukewarm, despite widespread praise for the company on the design and build-quality fronts. Importantly, the more capable tablet offering from Microsoft, the Surface Pro, has yet to come out.

Earnings Whispers?

Our proven model does not conclusively show that Microsoft will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank #1, #2 or #3 for this to happen. That is not the case here as you will see below.

Zacks ESP:  The Most Accurate estimate stands at $0.74 while the Zacks Consensus Estimate is higher at $0.75. That is a difference of -1.3%.

Zacks Rank #4 (Sell): Microsoft’s Zacks Rank #4  (Sell) lowers the predictive power of ESP because the Zacks Rank #4 when combined with a negative ESP makes surprise prediction difficult. We caution against stocks with Zacks Ranks #4 and #5 (Sell rated stocks) going into the earnings announcement, given the stock's negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:  

Yahoo Inc. (YHOO - Analyst Report), with Earnings ESP of 14.8% and Zacks Rank #1 (Strong Buy) and Expedia Inc. (EXPE - Analyst Report), with Earnings ESP of 3.6% and Zacks Rank #2 (Buy) remain well positioned.

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