Stock (Symbol) |
Microsoft (MSFT) |
Stock Price |
$57 |
Sector |
| Technology |
Data is as of |
| August 4, 2016 |
Expected to Report |
| Oct 20 |
Company Description |
 Microsoft Corporation is engaged in developing, licensing and supporting a range of software products and services. The Company also designs and sells hardware, and delivers online advertising to the customers. The Company operates in five segments: Devices and Consumer (D&C) Licensing, D&C Hardware, D&C Other, Commercial Licensing, and Commercial Other. The Company’s products include operating systems for computing devices, servers, phones, and other intelligent devices; server applications for distributed computing environments; productivity applications; business solution applications; desktop and server management tools; software development tools; video games; and online advertising. It also offers cloud-based solutions that provide customers with software, services and content over the Internet by way of shared computing resources located in centralized data centers. It provides consulting and product and solution support services. Source: Thomson Financial |
Sharek’s Take |
 Microsoft (MSFT) just had a great qtr as it whipped earnings estimates, put out 15% profit growth, and acquired LinkedIn. LinkedIn was an excellent purchase, as it got one of the world’s best growing franchises. Think about how many companies have been/are growing +30% a year. Netflix, Amazon, Facebook and LinkedIn are a rare breed of large companies who “own” their fields and expand rapidly. MSFT paid a premium to acquire LNKD, but I owned both stocks and can tell you LNKD was severely undervalued at the time. Since then LNKD pushed out a fantastic qtr and the stock might have jumped to the level it is now naturally. Microsoft also got back into the good graces of analysts when it pumped out 15% profit growth and crushed the -3% estimate. MSFT missed earnings estimates the qtr earlier and produced just 2% profit growth which was shocked us portfolio managers because the company had been doing double-digit profit growth while beating the street. Thus last qtr MSFT fell last qtr, and now it’s jumped back up this qtr. Along with J&J, this is one of the two safest companies in America. The books are clean. Many tech companies don’t account for employee options in the EPS calculations and MSFT does. Microsoft is successfully transforming itself into a subscription software company, but needs to keep its profit growth rate in the double-digits to achieve its potential. The Est LTG is 9% plus investors get a 2% yield. Stock sells for 20x earnings which is about where it should be. |
One Year Chart |
 This stock tried to break out after it reported earnings last qtr. Still looks like it’s stuck in the range, no? Sales increased just 2%. Estimates for the next 4 qtrs are as follows: 1%, 0%, 16% and 3%. The 16% growth sounds good, but is only because the company pooped out a bad qtr 2QtrsAgo and comparisons are easy. MSFT needs to beat the street to keep delivering double-digit profit growth. That’s not a given because it missed 2QtrsAgo. |
Fair Value |
 This stock’s valuation has risen during the past decade, but that’s fine is the company can transition to a subscription model. Still, look at how MSFT made $2.69 in 2011 and is only expected to make $2.89 this year. It needs to start producing faster profit growth. My Fair Value is 18x earnings, which is $52 this year. |
Bottom Line |
 Microsoft has good products with its Office 365, Surface, and Azure but still revenue isn’t growing much. There’s a lot of good things about MSFT including solid financial stability and a nice yield. Last qtr was great, and LinkedIn is a terrific franchise that could push profit growth past the double-digit threshold — really, that’s what’s needed on a consistent basis. Estimates call for 1% and 0% growth the next 2 qtrs — ugh. Microsoft ranks 32nd of 37 stocks in the Conservative Stock Portfolio Power Rankings. |
Power Rankings |
Growth Stock Portfolio
N/AAggressive Growth Portfolio N/AConservative Stock Portfolio 32 of 37 |
