Is the price of Microsoft shares reasonable?

Microsoft (NASDAQ:MSFT) stock is down about 12% year-to-date compared to the S&P500 index’s 5% decline over the same period. Moreover, at its current price of $297 per share, it is trading 20% ​​below its fair value of $371 – Trefis’ estimate for Microsoft’s assessment. The tech giant beat consensus estimates in the second quarter of fiscal 2022 (fiscal July-June), with revenue up 20% year-over-year to $51.7 billion. Each of the three segments showed growth in the quarter: productivity and business process (+19%), intelligent cloud (+26%) and more personal computing (+15%). Productivity and business processes primarily benefited from growth in desktop business products and cloud services and LinkedIn revenue. In addition, intelligent cloud revenue increased due to higher revenue from server products and cloud services generated by Azure and other cloud services. Along the same lines, growth in personal computing is being driven by higher Windows advertising, search, and news revenue. Overall, net income improved 21% year-on-year to $18.8 billion. It is driven by the growth in turnover and a slight increase in the operating margin.

The company’s total revenue grew 18% YoY to $168 billion in FY21, driven primarily by growth in the intelligent cloud segment (up 24% YoY annual). Additionally, its total revenue for the first half of fiscal 2022 increased 21% to $97 billion. This was driven by a 21% increase in the productivity and business processes unit, followed by a 28% jump in the intelligent cloud segment and a 14% increase in the more personal computing division. In all, the above revenue growth and operating margin improvement from 42.1% to 43.8% resulted in a six-month cumulative net profit of $3.93 billion, in up 34% year-on-year.

Microsoft is expected to continue its growth momentum in the second half of fiscal 2022. Notably, third-quarter consensus revenue and profit estimates are $49.04 billion and $2.19, respectively. Globally, Microsoft revenue are expected to touch $199.3 billion in fiscal 2022. Additionally, MSFT’s net income margin is expected to decline slightly from fiscal 2021 levels, although revenue growth will likely make up for the lost ground. This will likely translate to net income of $71.3 billion and annual EPS of $9.44. This, coupled with a P/E multiple just above 39x, will lead to a valuation of $371.

Here you’ll find our previous coverage of Microsoft stocks, where you can follow our view over time.

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