Dj Eli Lilly Ceo Hasn't Bought Company Shares In Years. He Just Bought This Stock. - Barrons.Com

Microsoft MSFT reported second-quarter fiscal 2025 earnings of $3.23 per share, which beat the Zacks Consensus Estimate by 3.86% and increased 10.2% on a year-over-year basis.

Find the latest earnings estimates and surprises on Zacks Earnings Calendar.

Revenues of $69.63 billion increased 12.3% year over year and beat the Zacks Consensus Estimate by 1.35%. At constant currency (cc), revenues grew 12% year over year.

However, Microsoft stock fell as much as 6% in extended trading on decelerating growth in its Azure cloud infrastructure unit.

In commercial business, increased demand and growth in long-term commitments to the Microsoft Cloud platform drove results.

Commercial bookings increased 67% (up 75% in cc) and were significantly ahead of expectations, driven by Azure commitments from OpenAI. Execution was strong across core annuity sales motions with growth in the number of 100-million-dollar-plus contracts for both Azure and Microsoft 365.

Commercial remaining performance obligation increased 34% (up 36% in cc) to $298 billion. Roughly 40% will be recognized in revenues in the next 12 months, up 21% year over year. The remaining portion, recognized beyond the next 12 months, increased 45%. In the reported quarter, the annuity mix was 97%.

FX did not have a significant impact on fiscal second-quarter results and was roughly in line with expectations on total company revenues, More Personal Computing revenues, total company COGS, and operating expense. FX decreased revenues more than expected in commercial segments.

Microsoft Cloud revenues were $40.9 billion and grew 21%. Gross margin percentage was 70%, which was in line with expectations and decreased 2 points year over year due to scaling AI infrastructure.

Microsoft Corporation Price, Consensus and EPS Surprise

Microsoft Corporation price-consensus-eps-surprise-chart | Microsoft Corporation Quote

Segmental Details

The Productivity & Business Processes segment, which includes the Office and Dynamics CRM businesses, contributed 42.3% to total revenues. Revenues increased 14% (up 13% at cc) on a year-over-year basis to $29.4 billion, which came ahead of expectations, driven by Microsoft’s 365 commercial.

M365 commercial cloud revenues increased 16% (up 15% in cc), slightly ahead of expectations due to better-than-expected performance in E5 and M365 Copilot. With M365 Copilot, MSFT continues to see growth in adoption, expansion and usage. ARPU growth was again driven by E5 and M365 Copilot. Paid M365 commercial seats grew 7% year over year with installed base expansion across all customer segments, though primarily in small and medium business and frontline worker offerings.

M365 commercial products revenues increased 13%, significantly ahead of expectations, driven by higher-than-expected transactional purchasing with the launch of Office 2024 as well as the Windows Commercial on-premises components from the better-than-expected performance of M365 suites.

M365 consumer cloud revenues rose 8%, slightly ahead of expectations. Microsoft continued to witness momentum in M365 consumer subscriptions, which grew 10% to 86.3 million with a mix shift to M365 Basic.

LinkedIn revenues increased 9% with continued growth across all lines of business. In the Talent Solutions business, results were slightly below expectations due to continued weakness in the hiring market in key verticals.

In subscriptions, LinkedIn Premium surpassed $2 billion in annual revenues for the first time this quarter. Subscriber growth has increased nearly 50% over the past two years, and nearly 40% of subscribers have used the company’s AI features to improve their profiles. LinkedIn Marketing Solutions remains the leader in B2B advertising.

Dynamics 365 revenues jumped 19% (up 18% in cc), slightly ahead of expectations with growth across all workloads.

Segment gross margin dollars increased 13% (up 12% in cc), and gross margin percentage decreased slightly year over year due to scaling the company’s AI infrastructure. Operating expenses rose 6% and operating income grew 16% (up 15% in cc).

The Intelligent Cloud segment, including server and enterprise products and services, contributed 36.7% to total revenues. The segment reported revenues of $25.5 billion and grew 19% with a more unfavorable FX impact than expected. Excluding the unfavorable FX impact, results in Azure non-AI services, on-prem server, and enterprise and partner services were slightly lower than expected, partially offset by better-than-expected results in Azure AI services.

Server products and cloud services revenues climbed 21% as Azure and other cloud services revenues grew 31%. Azure growth included 13 points from AI services, which grew 157% year over year and was ahead of expectations even as demand continued to be higher than our available capacity.

Growth in non-AI services was slightly lower than expected due to go-to-market execution challenges, particularly with customers that we primarily reach through scale motions, as the company balances driving near-term non-AI consumption with AI growth.

In the on-premises server business, revenues decreased 3%, slightly below expectations because of slower-than-expected purchasing around the Windows Server 2025 launch.

Enterprise and partner services revenues declined 1%, which came below expectations with lower-than-expected performance across Enterprise Support Services and Industry Solutions.

Segment gross margin dollars increased 12% (up 13% in cc) and gross margin percentage decreased 4 points year over year, primarily due to scaling the company’s AI infrastructure. Operating expenses increased 10% and operating income grew 14%.

More Personal Computing segment, which primarily comprises Windows, Gaming, Devices and Search businesses, contributed 21% to total revenues. Revenues were $14.7 billion, relatively unchanged year over year with better-than-expected results, driven primarily by Windows OEM pre-builds, usage from a third-party partnership in Search, as well as Call of Duty launch performance in Gaming.

Windows OEM and Devices revenues increased 4% year over year, which came ahead of expectations, driven by commercial inventory builds in advance of Windows 10 end of support as well as uncertainty around tariffs.

Search and news advertising revenue ex-TAC increased 21% (up 20% in cc), which came ahead of expectations, driven by usage from a third-party partnership. Growth continues to be driven by rate expansion and healthy volume growth in both Edge and Bing. Edge surpassed 30% market share in the United States on Windows and has taken share for 15 consecutive quarters.

In Gaming, revenues decreased 7% (down 8% in cc) as content and services growth continued to be offset by hardware declines. Xbox content and services revenues rose 2%, which came ahead of expectations, driven by stronger-than-expected performance in Blizzard and Activision content, including Call of Duty.

Microsoft continues to see strong momentum for Xbox Cloud Gaming, with a record 140 million hours streamed in the reported quarter. Black Ops 6 was the top-selling game on Xbox and PlayStation in the fiscal second quarter.

Game Pass set a new quarterly record for revenues and grew its PC subscriber base by more than 30%, as Microsoft continues to focus on driving fully paid subscribers across endpoints.

Segment gross margin dollars increased 13% (up 12% in cc). Gross margin percentage increased 6 points year over year, driven by sales mix shift to higher margin businesses as well as strong execution on margin improvement in Gaming and Search.

Operating expenses decreased 1%. Operating income increased 32% (up 30% in cc), driven by continued prioritization of higher margin opportunities.

Azure Boosts Microsoft's Fiscal Q2 Financials

When it comes to cloud migrations, Microsoft continues to see customers like UBS move workloads to Azure. UBS alone migrated mainframe workloads encompassing nearly 400 billion records and two petabytes of data.

Microsoft remains the cloud of choice for customers’ mission-critical Oracle ORCL, SAP and VMWare apps.

At the data layer, Microsoft Fabric has been gaining steady adoption. Microsoft now has more than 19,000 paid customers, from Hitachi to Johnson Controls, to Schaeffler. Fabric is now the fastest-growing analytics product in Microsoft’s history.

Power BI is also deeply integrated with Fabric, with more than 30 million monthly active users, up 40% since last year.

Beyond Fabric, Microsoft has been witnessing new AI-driven data patterns emerge. ChatGPT, Copilot and Enterprise AI apps have boosted the growth of raw storage, database services and App platform services as these workloads scale.

In the fiscal second quarter, the number of Azure OpenAI apps running on Azure databases and Azure app services more than doubled year over year, driving significant growth in adoption across SQL Hyperscale and Cosmos DB.

Azure AI Foundry features best-in-class tooling, runtimes to build agents and multi-agent apps, AI ops, and API access to thousands of models. Two months in, Microsoft already has more than 200,000 monthly active users.

Microsoft noted that DeepSeek’s R1 launched recently via the model catalog on Foundry and GitHub, with automated red teaming, content safety integration, and security scanning.

MSFT’s Phi family of SLMs has now been downloaded more than 20 million times. The company also has more than 30 models from partners like Bayer, Paige.AI, Rockwell Automation, Siemens to address industry-specific use cases.

Microsoft's AI Copilot Adoption Surges in Q2

GitHub Copilot is increasingly the tool of choice for both digital natives like ASOS and Spotify SPOT, as well as the world’s largest enterprises like HP, HSBC and KPMG.

The company has received an impressive early response to GitHub Copilot in VS Code, with more than a million signups in just the first week post-launch.

All-up, GitHub is now home to 150 million developers, up 50% over the past two years.

Customers who purchased Microsoft 365 Copilot during its first quarter of availability, have expanded their seats collectively by more than 10X over the past 18 months. Novartis has added thousands of seats each quarter over the past year and now has 40,000 seats. Barclays, Carrier Group, Pearson and the University of Miami all purchased 10,000 or more seats this quarter.

Overall, the number of people who use Copilot daily again more than doubled quarter over quarter. Employees are also engaging with Copilot more than ever. Usage intensity increased more than 60% quarter over quarter.

Copilot Chat, along with Copilot Studio, is now available to every employee to start using agents right in the flow of work. More than 160,000 organizations have already used Copilot Studio, and they collectively created more than 400,000 custom agents in the last three months alone, up more than 2X quarter over quarter.

Microsoft has also introduced its own first-party agents to facilitate meetings, manage projects, resolve common HR and IT queries, and access SharePoint data.

The company continues to see partners like Adobe ADBE, SAP, ServiceNow, and Workday, which build third-party agents and integrate with Copilot.

In healthcare, DAX Copilot surpassed 2 million monthly physician-patient encounters, up 54% quarter over quarter.

Customers are choosing the latest Windows 11 devices for their enhanced security and advanced AI capabilities.

More than 15% of premium-priced laptops in the United States this holiday were Copilot+ PCs, and Microsoft expects the majority of the PCs sold in the next several years to be Copilot+ PCs.

With Security Copilot, organizations across the private and public sectors, like the City of Johannesburg, Eastman, Intesa Sanpaolo, National Australia Bank and NTT, can resolve incidents 30% faster.

Operating Results

Gross profit increased 12.8% year over year to $47.83 billion. The gross margin expanded 30 basis points (bps) to 68.7% on a year-over-year basis, primarily driven by sales mix shift to higher margin businesses as well as improvement in Gaming and Search, partially offset by the impact of scaling our AI infrastructure.

Operating expenses rose 5.3% year over year to $16.81 billion, lower than expected, and operating margins increased 2 points year-over-year to 45%. The better-than expected margin expansion was driven by delivering efficiencies across our businesses as we invest to scale AI infrastructure and build AI applications.

At a total company level, headcount at the end of December was 2% higher than a year ago and was relatively unchanged from last quarter.

Operating income increased 17% (up 16% in cc) to $31.65 billion. The operating margin expanded 190 bps to 45.5% on a year-over-year basis.

Productivity & Business Process operating income rose 16.3% to $16.88 billion. Intelligent Cloud operating income increased 13.6% to $10.85 billion. More Personal Computing’s operating income increased 32.2% to $3.91 billion.

Balance Sheet & Cash Flow

As of Dec. 31, 2024, Microsoft had total cash, cash equivalents and short-term investments balance of $71.55 billion compared with $78.42 billion as of Sept. 30, 2024.

As of Dec. 31, 2024, long-term debt (including the current portion) was $44.66 billion compared with $42.86 billion as of Sept. 30, 2024.

Cash flow from operations was $22.3 billion, up 18%, driven by strong cloud billings and collections, partially offset by higher supplier, employee and tax payments. Free cash flow was $6.5 billion, down 29% year over year, reflecting higher capital expenditures to support cloud and AI offerings.

Microsoft returned $9.7 billion to shareholders in the form of dividends and share repurchases in the second quarter of fiscal 2025.

Guidance

For the fiscal third quarter, Microsoft expects the cost of revenues between $21.65 billion and $21.85 billion and operating expenses to grow in the $16.4-$16.5 billion range. Other income and expenses are expected to be roughly $(1) billion.

The company expects revenue growth in the productivity and business processes segment between $29.4 billion and $29.7 billion.

MSFT expects Office 365 Commercial revenue growth to be roughly between 14% and 15% at cc. Office Commercial products revenues are expected to remain relatively flat year over year.

In Office Consumer products and cloud services, Microsoft expects revenue growth in mid-to-high single digits. For LinkedIn, the company expects revenue growth in low-to-mid single digits. In Dynamics, MSFT expects revenue growth in the mid-teens.

For Intelligent Cloud, Microsoft anticipates revenues between $25.9 billion and $26.2 billion.

In Azure, MSFT expects revenue growth at cc between 31% and 32%. In Enterprise Services, revenues are expected to grow in low-to-mid single digits. The company expects Server product revenues to decline in mid-single digits.

For More Personal Computing, the company projects revenues between $12.4 billion and $12.8 billion. It expects Windows OEM revenues to decline in low-to-mid single digits.

In Gaming, this Zacks Rank #3 (Hold) company expects revenues to grow in low-single digits. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Microsoft expects Xbox content and services revenues to grow in low-to-mid single digits.

Zacks Investment Research

Viking Therapeutics VKTX is set to report fourth-quarter and full-year 2024 earnings on Feb. 5, after market close. Since the company lacks a marketed drug in its portfolio, we do not expect it to record revenues. The Zacks Consensus Estimate for earnings is pegged at a loss of 27 cents per share. Estimates for 2025 loss per share have improved slightly from $1.42 to $1.41 in the past 60 days.

See the Zacks Earnings Calendar to stay ahead of market-making news.

By Paul R. La Monica

Healthcare stocks have been under the weather for the past few years, underperforming the broader market's rally despite surges for obesity drugmakers Eli Lilly and Novo Nordisk. But the sector is off to a healthy start in 2025. Is the worst finally over for Big Pharma, biotechs, insurers, and medical device makers?

CVS Health — which owns insurer Aetna and pharmacy-benefits manager Caremark, along with its massive drugstore franchise — is the best-performing stock in the S&P 500 this year, surging nearly 30% as of midday Wednesday. Shares of CVS's struggling rival, Walgreens Boots Alliance, have soared more than 20% as well. Healthcare insurer Humana has risen nearly 20%. And shares of medical equipment companies DaVita, Medtronic, DexCom, Thermo Fisher, and Baxter are all sporting double-digit percentage gains in 2025.

This could be just the beginning. Many leading healthcare stocks are still playing catch-up to the broader market. The Health Care Select Sector SPDR exchange-traded fund is trading for less than 18 times earnings estimates for this year, a 20% discount to the S&P 500's price-to-earnings ratio of more than 22. The sector typically trades for only about 13% below the broader market's multiple, according to FactSet.

"The healthcare sector is cheap. It's hated," said Sandy Villere III, a portfolio manager with Villere & Co. But that's good news for bargain hunters looking for values, he said. Another plus: "You still get good yields," with many healthcare stocks paying dividends north of 1.5%, he added.

Villere said his firm is making a broad bet on the sector, with positions in Big Pharma/medical equipment company Abbott Laboratories; infusion services firm Option Care; biotech Ligand Pharmaceuticals; medical device maker Teleflex; and Idexx Laboratories, which develops diagnostic and testing products for veterinarians.

Earnings are expected to grow at a solid clip for the entire sector this year and next as well, following a big drop in 2023 and only about a 5% rebound last year. Analysts are forecasting a 20% increase for the sector's earnings in 2025 and another 10% gain in 2026.

It also appears that investors are slightly less worried about the possibility of massive changes to the sector coming from Washington.

Yes, Robert F. Kennedy, Jr. remains a worry for vaccine makers, but his confirmation as Health and Human Services secretary is far from certain. There are also lingering concerns about bipartisan legislation from Senators Elizabeth Warren and Josh Hawley that seeks to rein in the power of healthcare companies that own the big pharmacy-benefit managers, namely CVS, UnitedHealth and Cigna.

Investors should ignore the political noise. Michael Arone, chief investment strategist for State Street's SPDR Business, is predicting that healthcare stocks will beat the S&P 500 this year, saying that the sector is "ripe for an upside performance surprise."

Arone noted that the health care sector has outperformed the broader market in the first year of every Republican administration since President Ronald Reagan's inaugural year in 1981. In addition, the healthcare sector's weighting in the S&P 500 is now flirting with a 25-year low, he said.

Janus Henderson portfolio managers Andy Acker and Dan Lyons also think the market is overly fearful about potential disruption from the White House and Congress.

"There's also a tendency for healthcare stocks to assume the worst about potential policy reform, selling off before details — often more nuanced than they first appear — become clear. We think today is no exception," Acker and Lyons said in a report Wednesday.

The duo added that RFK Jr., if confirmed, won't be the only one calling the shots on healthcare policy in Washington. They noted that Kennedy would likely have little power over changes at the Food and Drug Administration and wrote that "President Donald Trump's nominee for FDA commissioner, Dr. Martin Makary, a well-respected physician, could be a counterbalancing force."

So at the end of the day, investors should focus on how cheap the sector is. Ackers and Lyons said healthcare stocks are "deeply undervalued."

"The selling is overdone, with the market not fully appreciating the acceleration of innovation in healthcare and overreacting to near-term headwinds," they wrote. "The sector could be set up for strong future returns."

Write to Paul R. La Monica at paul.lamonica@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

AstraZeneca AZN will report its fourth-quarter and full-year 2024 earnings on Feb. 6, before market open. The Zacks Consensus Estimate for sales and earnings is pegged at $14.28 billion and $1.06 per share, respectively. Earnings estimates for AstraZeneca have declined from $4.69 per share to $4.66 per share for 2025 over the past 30 days.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

AZN Estimate Movement

Earnings Surprise History for AZN

The healthcare bellwether’s performance has been mixed, with the company exceeding earnings expectations in three of the trailing four quarters while missing in one. It delivered a four-quarter earnings surprise of 3.29%, on average. In the last reported quarter, the company delivered an earnings surprise of 2.97%.

What Does Our Model Say for AZN?

AstraZeneca has an Earnings ESP of -2.84% and a Zacks Rank #3 (Hold). Per our proven model, companies with the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 have a good chance of delivering an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Sales Estimates for Tagrisso, Lynparza & Other Key Drugs

Sales of AstraZeneca’s key medicines, mainly cancer drugs — Lynparza, Tagrisso and Imfinzi — and diabetes medicine Farxiga are expected to have driven the company’s top line in the fourth quarter, backed by strong demand trends.

AstraZeneca’s other drugs, Fasenra, Calquence, Breztri and newer products, asthma drug Tezspire, breast cancer drug Truqap and lupus drug Saphnelo (anifrolumab) are likely to have contributed to sales growth in the soon-to-be-reported quarter. Sales of Truqap and Saphnelo improved sequentially in the third quarter, a trend likely to have continued in the fourth quarter.

The Zacks Consensus Estimate for Lynparza, Tagrisso and Imfinzi are $792 million, $1.68 billion and $1.29 billion, respectively.

Our model estimates for Lynparza, Tagrisso and Imfinzi are $789.0 million, $1.62 billion and $1.29 billion, respectively.

The Zacks Consensus Estimate for Fasenra and Farxiga is $437 million and $1.96 billion, respectively.

Our model estimates for Fasenra and Farxiga are $435.9 million and $1.96 billion, respectively.

How Will AZN’s New and Legacy Drugs Perform?

Investors will be keen to know the sales number of AstraZeneca’s new products Airsupra (asthma), Voydeya (paroxysmal nocturnal hemoglobinuria) and Wainua (ATTRv-PN) as well as AstraZeneca and partner Sanofi’s SNY respiratory syncytial virus (“RSV”) antibody Beyfortus (nirsevimab).

AstraZeneca records 50% share of gross profits on sales of Beyfortus in major markets outside the United States received from Sanofi as Alliance revenues. It also records Beyfortus product sales from products supplied to partner Sanofi under the Vaccines & Immune Therapies segment.

Like the previous two quarters, sales of key respiratory medicine Symbicort are expected to have risen in the fourth quarter due to strong underlying demand in the United States and Emerging markets, which are likely to have offset the impact of generic erosion in Europe and Japan.

The Zacks Consensus Estimates for Symbicort is $639 million, while our model estimate is $615.9 million.

Sales of AstraZeneca’s major legacy drugs have been declining due to rising generic competition. The trend is likely to have continued in the fourth quarter.

Sales of AstraZeneca’s Rare Disease drugs like Ultomiris and Strensiq are expected to have been strong and contributed to the top line. Sales of Soliris are likely to have declined due to conversion to Ultomiris.

AZN’s Alliance Revenues & Costs

Alliance revenues are expected to have been an important contributor to the top line, driven by continued growth in royalties and profit share from partnered medicines.

AstraZeneca’s SG&A costs are expected to have been higher in the fourth quarter due to increased investment in launches for new products Airsupra, Wainua and Truqap. R&D costs are expected to have increased due to investment in the pipeline.

On the third-quarter conference call, management issued a preliminary outlook for 2025. The company said it expects top-line growth of around 20% in 2025. The company also mentioned that sales of Farxiga are expected to decline substantially in 2025 as the drug will be included in China's Volume-based Procurement (VBP) program in 2025. The company also said that the percentage of revenues the company derives from China is expected to decline over time from the present around 12-13% due to higher growth in ex-China markets. An update is expected on the fourth-quarter conference call.

An update on the ongoing investigation at its China subsidiary is also expected. The Chinese authorities are investigating some current and former AstraZeneca employees at its China subsidiary for medical insurance fraud, illegal drug importation and personal information breaches.

Nonetheless, a single quarter’s results are not so important for long-term investors. Let us delve deeper to understand whether to buy, sell or hold AstraZeneca stock.

AZN Stock’s Price, Valuation & Estimates

AstraZeneca’s stock has risen 3.5% in the past year, outperforming an increase of 0.2% for the industry.

AstraZeneca Stock Underperforms Industry

From a valuation standpoint, AstraZeneca appears attractive relative to the industry. Going by the price/earnings ratio, the company’s shares currently trade at 14.81 forward earnings, lower than 16.44 for the industry as well as its 5-year mean of 18.30. The stock is cheaper than that of other large drugmakers like Lilly LLY and Novo Nordisk NVO.

AZN Stock Valuation

Our Investment Thesis on AZN Stock

AstraZeneca boasts a diversified geographical footprint as well as a product portfolio with several blockbuster medicines. AstraZeneca now has 12 blockbuster medicines in its portfolio, with sales exceeding $1 billion, including Tagrisso, Fasenra, Farxiga, Imfinzi, Lynparza, Soliris and Ultomiris. These drugs are driving the company’s top line backed by increasing demand trends. The company is confident that the growth will continue in 2025.

Oncology is AstraZeneca’s biggest segment. The company is working on strengthening its oncology product portfolio through label expansions of existing products and progressing oncology pipeline candidates. AstraZeneca has been making significant progress with its pipeline in other areas like cardiovascular health, immunology and rare diseases.

AstraZeneca has its share of problems like potentially lower sales of Farxiga in 2025 and ongoing China investigations. However, the company is confident of continued growth momentum in the Oncology, Rare Disease and CVRM segments in 2025.

Backed by its new products and pipeline drugs, AstraZeneca believes it can post industry-leading top-line growth in the 2025-2030 period. The company is also on target to achieve a mid-30s percentage core operating margin by 2026.

Stay Invested in AZN Stock

No matter how the fourth-quarter results play out, we suggest those who own AstraZeneca’s stock stay invested as the company shows potential to generate consistent profits. Buying the stock of this fundamentally strong company at its present reasonable valuation can prove prudent for long-term investors who are interested in buying blue-chip companies.

Zacks Investment Research