Microsoft Continues To Impress

| About: Microsoft Corporation (MSFT)

Microsoft (NASDAQ:MSFT) reported earnings after the bell on Thursday. It provided a solid update which should provide confidence to long term holders of the stock. Some of the report highlights are listed below. As readers of my regular columns know, I have been a big bull on MSFT since it was at $24 last year. Given its most recent earnings and upcoming catalysts, I continue to believe the stock should be a core holding for value investors.

Highlights from earnings report

  • Earnings beat by three cents a share.
  • Revenues grew 6% to $17.4B, some $200mm above estimates.
  • Its "Windows" business segment surpassed analysts' estimates for the first time in six quarters.
  • Its business division (mainly Microsoft Office) revenues rose over 9% also beating estimates.

Upcoming catalysts

  • It should roll out its most anticipated OS upgrade in a decade, Windows 8, sometime in the fourth quarter.
  • More and more phones should roll out with Windows by end of the year. The Lumia series with Nokia (NYSE:NOK) is selling better than expected and has a solid advertising campaign behind it, even if a software glitch provided a hiccup to the launch. Look for more Asian handset makers to roll out phones with Windows by the end of year. Microsoft's phone OS is getting support by handset makers who don't like supporting an OS by Google (NASDAQ:GOOG) given its purchase of Motorola Mobility. Carriers are also supportive as they don't want to see a duopoly of just Android and Apple (AAPL).
  • Given recent history, Microsoft should announce another dividend hike by the end of the year.

4 reasons Microsoft still offers value at $31 a share:

  • The company is one of four S&P stocks with an AAA credit rating and pays a dividend of 2.6%.
  • The stock is going for just over 10 times forward earnings and around 9 times operating cash flow.
  • Credit Suisse has an "outperform" rating and just bumped its price target to $38 from $34. Based on this latest earnings report, I would look for other analysts to do the same.
  • I believe the chatter about an acceleration of a Facebook (NASDAQ:FB) and Microsoft partnership around the Bing search engine could turn out to be prescient and a game changer as well as a significant catalyst for the stock.

Disclosure: I am long MSFT.