Microsoft Corporation (MSFT) is a tech behemoth providing software services, solutions, and devices worldwide. The company sells its products through distributors, OEMs, resellers, or digital marketplaces. MSFT has a $2.11 trillion market capitalization.
The big tech stocks faltered earlier this year due to investors worrying about the rising inflation and a slowing economy. However, even as the economic output fell for two straight quarters, big tech posted robust sales and profits, underscoring their resilience. MSFT cited its lucrative cloud business as the basis for its stable quarterly growth.
Over the past year, MSFT’s stock has been down 2.3%. It has declined 15.9% year-to-date. However, the stock seems to be rebounding as it has gained 3% over the past three months and 5.4% over the past month. It has gained 1.7% over the past five days to close its last trading session at $282.91.
Moreover, of the 30 Wall Street analysts rating the stock, 29 have rated it Buy, while one has rated it Hold. The 12-month median price target of $329.20 indicates a 16.4% potential upside. The price targets range from a low of $275.00 to a high of $411.00.
Here are the factors that could affect MSFT’s performance in the near term:
Solid Financials
For the fiscal fourth quarter ended June 30, MSFT’s total revenue increased 12.4% year-over-year to $51.87 billion. Operating income rose 7.5% from the prior-year quarter to $20.53 billion. Net income and EPS improved 1.7% and 2.8% from the same period the prior year to $16.74 billion and $2.23.
Wide Profit Margins
MSFT’s trailing-12-month EBIT margin and net income margin of 42.06% and 36.69% are 446% and 763.6% higher than their respective industry averages of 7.70% and 4.25%. The stock’s trailing-12-month ROE, ROTC, and ROA of 47.15%, 22.21%, and 19.94% are 585%, 434.3%, and 625.6% higher than their respective industry averages of 6.88%, 4.16%, and 2.75%.
Strong Past Growth Story
MSFT’s revenue has grown at a 16.4% CAGR over the past three years and a 15.5% CAGR over the past five years. Its EBIT and net income have grown at 24.7% and 22.8% CAGRs over the past three years. Its EPS has increased at a 24% CAGR over the same period.
Favorable Analysts Expectation
Analysts expect MSFT’s EPS to improve 12.3% year-over-year to $10.34 for the fiscal year ending 2023, while Street revenue estimate of $220.84 billion for the same year indicates a rise of 11.4% from the prior year. In addition, MSFT has beaten consensus EPS estimates in three out of the trailing four quarters. Its EPS is expected to increase 15.4% per annum over the next five years.
POWR Ratings Reflect Promising Prospects
MSFT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
MSFT has a Stability grade of B in sync with its five-year monthly beta of 0.93.
The stock also has a B grade for Quality, consistent with impressive profit margins.
In the 55-stock Software – Business industry, it is ranked #11.
Click here to see the additional POWR Ratings for MSFT (Growth, Value, Momentum, and Sentiment).
View all the top stocks in the Software – Business industry here.
Bottom Line
The large-cap tech stock has been investors’ darling for a long time. Although the stock witnessed a decline this year amid the broader market sell-off, it seems to be rebounding. Also, Wall Street expects the stock to register stable gains in the near term. Moreover, given its solid growth potential and leadership position in the industry, this big tech might be a solid buy now.
How Does Microsoft Corporation (MSFT) Stack Up Against its Peers?
While MSFT has an overall POWR Rating of B, one might consider looking at its industry peer, Amdocs Limited (DOX), which has an overall A (Strong Buy) rating.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
1 Big Tech Stock to Buy as It Looks to Rebound StockNews.com
