Stock (Symbol) |
Microsoft (MSFT) |
Stock Price |
$65 |
Sector |
| Technology |
Data is as of |
| February 26, 2017 |
Expected to Report |
| Apr 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 |
 I’m not as impressed with Microsoft (MSFT) as other investors are. Last qtr the company delivered just 6% profit growth on 2% sales growth, which is hardly anything to get excited about, and with a P/E of 22 I feel the stock is a little overpriced. What was good in last qtr’s report is MSFT’s cloud computing service Azure almost doubled revenue year-over-year, and Microsoft Office 365 commercial had a 47% rise in sales. Also, the company closed on its purchase of LinkedIn on December 8th, and that will boost sales growth from here on out. But still, profits are only expected to climb 7% this year, and if MSFT continues to beat the street (as it has been) then I’m thinking maybe 9% profit growth this year and perhaps 9% next year. Microsoft along with Johnson & Johnson are the two safest stocks in the world, thus MSFT deserves a P/E much higher than its growth rate (the Est. LTG is 9% per year). Investors also receive a yield of close to 2 1/2%. And the company has successfully moved from an “in the box” sales model to a subscription one which gives sales more consistency. But when you look at the stock’s recent rise it seems to coincide with Donald Trump’s Presidential win and more than anything the company is doing. I feel this stock is worth 20x earnings which equates to $60 a share this year and $65 next year (MSFT has a September 30th fiscal year end). This is a good time for existing investors to sell half their shares. |
One Year Chart |
 Last qtr MSFT delivered 2% (really 1.5%) sales growth and 6% profit growth, which blew past the 0% estimate. It was the third big beat in a row for MSFT. For the 2nd straight qtr Wall St loved the news and sent the stock to an All-Time high. But afterwards, Annual Profit Estimates only increased 2 cents this year and two cents for 2018 — that’s not so impressive. Profit Estimates for the next 4 qtrs are: 13%, 0%, 1% and 7% and since management is underpromising to overdeliver I’m guessing profits could grow 9% moving forward, which is also MSFT’s Estimated Long-Term Growth Rate. |
Fair Value |
 My Fair Value on this stock is 20x earnings, which gets us to a price of $60 per share. Since MSFT does end its fiscal year September 30th, I’ll be looking ahead to 2018 figures this Summer, thus the stock price isn’t that much out of line. Do note this stock had a P/E of 10-12 during 2011-2013. Throughout my career it has been abundantly clear we should buy Blue Chip stocks when the P/E gets to around 12 because these great companies have so much cash they can use it to develop new products, energize growth, get a higher P/E, and offer investors solid returns. |
Bottom Line |
 Microsoft stock has successfully transformed itself into a subscription company with products that are in demand and liked by both consumers and organizations. But I feel the stock has gotten a little ahead of itself, and doesn’t offer much as far as anticipated return (the chart is also a little toppy here). Still, this is a very safe security with an Est. LTG of 9% per year plus a 2% dividend. I feel this is a good time to take profits in this stock and recommend investors sell half their shares. I feel with the market high investors should have some cash on hand in case of a market correction. Microsoft drops from 13th to 26th in the Conservative Stock Portfolio Power Rankings. |
Power Rankings |
Growth Stock Portfolio
N/AAggressive Growth Portfolio N/AConservative Stock Portfolio 26 of 30 |
