Stock (Symbol) |
Microsoft (MSFT) |
Stock Price |
$97 |
Sector |
| Technology |
Data is as of |
| March 10, 2018 |
Expected to Report |
| Apr 29 |
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. Source: Thomson Financial |
Sharek’s Take |
 Microsoft’s (MSFT) commercial cloud revenue grew 56% year-over-year last qtr. With “broad based growth” across world markets and segments alike. Wow! And commercial cloud — which competes with Amazon Web Services — is now a full 18% of total MSFT sales. It helped profits grow 16% on a 12% bump in sales last qtr. But — and this is a big but — profits and sales from the recently acquires LinkedIn have helped sales & profits for four qtrs now (the acquisition closed in December 2016). So after next qtr’s report we could be seeing a slower-growing Microsoft. Microsoft has a lot of growth avenues including cloud storage, Office 365 (which allows people to login from anywhere to view files and emails) and the Xbox video game franchise. Video games are becoming 3D and lifelike — there’s huge growth opportunity here. Microsoft has three main divisions (below), each around 1/3rd of sales. Here’s the breakdown of last qtr’s sales growth by division:
Microsoft management has done an incredible job of moving the company forward into the dominant force that it once was. It’s a leader in spending on Artificial Intelligence and management also has the cash to buy back stock and pay a dividend. MSFT has an Estimated Long Term Growth Rate of 11% a year in addition to a yield of 2%. This stock along with Johnson & Johnson are the two safest stocks in the world. Thus, the P/E ratio of 26 is higher than a normal 11% grower. But MSFT is growing faster than 11% right now, so this stock is worthy of a higher P/E. Management has been underpromising to overdeliver, and with the company beating the street by a good margin the last seven qtrs. MSFT is a solid core holding in the Conservative Growth Portfolio as its an excellent choice for conservative investors who need technology to balance out their portfolios. But my 2018 Fair Value is $84, and with the stock at $97 it may have gotten ahead of itself. |
One Year Chart |
 The big question on my mind is qtrly profit Estimates of 16%, 2%, 8% and 7%. What if profit growth simmers down to 11%? Then the P/E might come down a bit. LinkedIn is boosting sales growth year-over-year for the 1/2 next qtr or so. And that’s a 50% rise in a year. A year where profits didn’t go up 50%. A lot of this growth is multiple expansion, which can be dangerous. But maybe I’m too negative. Profit estimates did rise, but management outlined a lower tax rate so that had something to do with it. This chart looks extended. |
Fair Value |
 2018 profit estimates increased from $3.39 to $3.65. I am taking my Fair Value P/E up from 22 to 23. MSFT has its fiscal year end June 30th so we will be looking ahead to 2019 Est. next qtr. The stock’s not that overvalued. |
Bottom Line |
 Microsoft stock was stuck in a trading range from 2001 to 2013 as it was old school. Now its new school and investors love the new look. But again, the stock seems too high in this ten-year chart. MSFT ranks just 18th of 35 stocks in the Conservative Stock Portfolio Power Rankings. I think it needs to go sideways a bit. The stock hasn’t corrected since it was in the $50s. |
Power Rankings |
Growth Stock Portfolio
N/AAggressive Growth Portfolio N/AConservative Stock Portfolio 18 of 35 |
