Profile and Estimates
Microsoft has a market cap of $240.31 billion and currently trades for $28.69 per share. Shares are up 8.31% YTD and are roughly 10% above their 52-week low of $26.04 and 10% below their 52-week high of $31.94. Analysts have a mean target price of $32.67 and a median price target of $33.00. Sixteen analysts have an average 3rd quarter EPS estimate of $0.68 per share on estimated revenues of $20.56 billion. Microsoft has beat earnings expectations in three of the last four quarters.
- P/E of 15.8, P/B of 3.3 and P/S of 3.4 all below the industry averages 36.8, 3.5 and 3.7 respectively.
- Operating margins of 26.9, net margins of 21.2 and ROE of 22.6 all below the industry averages 36.6, 28.3 and 30.4 respectively.
- Current Dividend yield of 2.99%.
- Revenues have increased in each of the last 3 years and came in at $73.7 billion last year and $17.4 billion in 3Q2012.
- Last year Microsoft generated $31.6 billion in cash from operating activities from which it used $3.116 billion to repurchase shares (net share repurchases).
- Wide Moat: With high conversion costs and a large following, Microsoft's widely used software is now being leveraged to generate tablet sales and smartphone devices/applications to users looking for a streamlined or cohesive user experience.
- The Windows store, the surface and Office 365 address all of the points where Microsoft was losing ground to its competitors. This quarter's earnings is expected to see positive growth from all of these new revenue streams.
- Alternative devices and operating systems have stolen market share from Microsoft.
- Growth in new products like the cloud and tablets may be slow going. Also, tablets may be great software promoters but are lower-margin items.
Shares currently trade in the middle of their 52 week high and low. I expect this earnings release to beat estimates but ultimately believe shares will mirror the movement of the S&P 500, short-term, regardless of the outcome. Microsoft's new products are sure to keep revenues growing and EPS should also be up over last year's due to this and last year's goodwill impairment charge of $6.2 billion. I like Microsoft as a long-term holding but have no shares because I am actively buying Apple (AAPL) after its pullback.