Annual Dividend Rate
$1.44 Annual Dividend Yield2.46% Beta1.06 Market Capitalization$454.3 Billion 52-Week Range$39.72-$58.50 Price as of 8/11/2016$58.30 Sector: Technology Sub-Industry: Systems Software Source: S&P
MSFT BUSINESS DESCRIPTION
Microsoft Corporation, a technology company, develops, licenses, and supports software products, services, and devices worldwide. STOCK PERFORMANCE (%)
3 Mo. 1 Yr. 3 Yr (Ann)
Price Change 14.20 25.61 21.26
GROWTH (%)
Last Qtr 12 Mo. 3 Yr CAGR
Revenues -7.07 -8.83 3.10
Net Income 197.71 37.76 -8.41
EPS 197.50 43.15 -7.02
RETURN ON EQUITY (%)
MSFT Ind Avg S&P 500
Q4 2016 23.33 13.86 11.83 Q4 2015 15.22 10.54 13.71 Q4 2014 24.58 15.78 14.43 P/E COMPARISON 27.89 MSFT 59.48 Ind Avg 25.29 S&P 500 EPS ANALYSIS¹ ($) 2016 Q 4 0. 39 Q 3 0. 47 Q 2 0. 66 Q 1 0. 57 2015 Q 4 -0 .4 0 Q 3 0. 61 Q 2 0. 71 Q 1 0. 54 2014 Q 4 0. 55 Q 3 0. 68 Q 2 0. 78 Q 1 0. 62
NA = not available NM = not meaningful
1 Compustat fiscal year convention is used for all fundamental data items.
Weekly Price: (US$) SMA (50) SMA (100) 1 Year 2 Years
2014 2015 2016 40 45 50 55 60 65 70 TARGET PRICE $67.34 TARGET PRICE $67.34TARGET PRICE $67.34 TARGET PRICE $67.34TARGET PRICE $67.34
Rating History BUY 0 250 500 Volume in Millions
COMPUSTAT for Price and Volume, TheStreet Ratings, Inc. for Rating History RECOMMENDATION
We rate MICROSOFT CORP (MSFT) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its solid stock price performance, impressive record of earnings per share growth, notable return on equity, reasonable valuation levels and good cash flow from operations. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results.
HIGHLIGHTS
Powered by its strong earnings growth of 197.50% and other important driving factors, this stock has surged by 25.61% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, MSFT should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year. MICROSOFT CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. During the past fiscal year, MICROSOFT CORP increased its bottom line by earning $2.09 versus $1.46 in the prior year. This year, the market expects an improvement in earnings ($2.89 versus $2.09).
Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. When compared to other companies in the Software industry and the overall market, MICROSOFT CORP's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
Net operating cash flow has increased to $8,464.00 million or 24.17% when compared to the same quarter last year. In addition, MICROSOFT CORP has also modestly surpassed the industry average cash flow growth rate of 21.25%.
PEER GROUP ANALYSIS
REVENUE GROWTH AND EBITDA MARGIN*
EBITDA Margin (TTM) R ev en ue G ro w th (T TM ) -3 0% 50 % 50% -20% FA VO RA BLE UN FA VO RA BLE VMW VMW VMW VMW VMW N N N NN FTNTFTNTFTNTFTNTFTNT PFPT PFPTPFPT PFPT PFPT ORCL ORCLORCL ORCL ORCL CA CA CA CA CA SYMC SYMC SYMC SYMC SYMC RHT RHT RHT RHT RHT CHKP CHKP CHKP CHKP CHKP NOW NOWNOW NOW NOW MSFT MSFT MSFT MSFT MSFT
Companies with higher EBITDA margins and revenue growth rates are outperforming companies with lower EBITDA margins and revenue growth rates. Companies for this scatter plot have a market capitalization between $3.2 Billion and $454.3 Billion. Companies with NA or NM values do not appear. *EBITDA – Earnings Before Interest, Taxes, Depreciation and Amortization.
REVENUE GROWTH AND EARNINGS YIELD
Earnings Yield (TTM) R ev en ue G ro w th (T TM ) -3 0% 50 % 6% -6% FA VO RA BLE UN FA VO RA BLE VMW VMW VMW VMWVMW N NN N N FTNTFTNTFTNTFTNTFTNT PFPT PFPTPFPT PFPT PFPT ORCL ORCL ORCL ORCLORCLCACACACACA SYMC SYMCSYMC SYMC SYMC RHT RHTRHT RHT RHT CHKP CHKPCHKP CHKP CHKP NOW NOWNOW NOW NOW MSFT MSFTMSFT MSFT MSFT
Companies that exhibit both a high earnings yield and high revenue growth are generally more attractive than companies with low revenue growth and low earnings yield. Companies for this scatter plot have revenue growth rates between -26.6% and 42.9%. Companies with NA or NM values do not appear.
INDUSTRY ANALYSIS
The US software industry is characterized by growth, innovation and technological advancements. The business remains knowledge intensive and market structure is influenced by ownership of intellectual property. Technology and product innovation shape business models in a rapidly changing environment. The industry can be divided into three main categories: systems software, programming software, and application software.
The industry landscape has seen radical change in recent years due to the growth of mass markets for packaged software. Software development has witnessed rapid evolution over the past few decades with projects increasing in size and complexity as the available computer hardware has dramatically improved in both processing speed and storage size.
The number of patents being issued across the industry has recently surged. Ownership of intellectual property is a key driver of growth and the patent system plays a vital role in the development of the industry. However, piracy remains a pressing issue as copyright infringement and illegal reproduction and transfer of licensed software is widespread.
The software industry is not immune to the global economy. The return to positive slow growth will positively impact all industries and enhance new investments, which could bolster demand for services and add to sales growth in the upcoming quarters. The need to lower costs has triggered global capabilities to evolve in China and India. India, for instance, has emerged as the number two software talent pool worldwide, capturing more than a quarter of the global outsourcing market. The industry is currently positioned favorably going forward.
PEER GROUP: Software
Recent Market Price/ Net Sales Net Income
Ticker Company Name Price ($) Cap ($M) Earnings TTM ($M) TTM ($M)
MSFT MICROSOFT CORP 58.30 454,304 27.89 85,320.00 16,798.00
VMW VMWARE INC 71.02 8,835 28.64 6,821.00 1,055.00
N NETSUITE INC 108.73 8,799 NM 846.40 -137.23
FTNT FORTINET INC 32.85 5,673 821.25 1,152.56 6.37
PFPT PROOFPOINT INC 75.10 3,157 NM 313.00 -129.77
ORCL ORACLE CORP 41.28 170,186 19.94 37,047.00 8,901.00
CA CA INC 34.35 14,391 19.19 4,047.00 769.00
SYMC SYMANTEC CORP 22.11 13,611 NM 3,572.00 2,506.00
RHT RED HAT INC 74.42 13,477 64.71 2,139.13 212.46
CHKP CHECK POINT SOFTWARE TECHN 75.18 12,892 19.28 1,688.95 695.59
NOW SERVICENOW INC 76.09 12,517 NM 1,193.99 -461.37
COMPANY DESCRIPTION
Microsoft Corporation, a technology company, develops, licenses, and supports software products, services, and devices worldwide. The company's Productivity and Business Processes segment offers Office 365 commercial products and services for businesses, including Office, Exchange, SharePoint, and Skype, as well as related Client Access Licenses (CALs); Office 365 consumer services, such as Skype, Outlook.com, and OneDrive; and Dynamics business solutions, including financial management, customer relationship management, supply chain management, and analytics applications for small and mid-size businesses, large organizations, and divisions of various enterprises. Its Intelligent Cloud segment licenses server products and cloud services, such as SQL Server, Windows Server, Visual Studio, System Center, and related CALs, as well as Azure, a cloud platform with computing, networking, storage, database, and management services; and enterprise services, such as Premier Support and Microsoft Consulting services that assist in developing, deploying, and managing Microsoft server and desktop solutions, as well as provide training and certification to developers and IT professionals on Microsoft products. The company's More Personal Computing segment comprises Windows OEM, volume, and other non-volume licensing of the Windows operating system, as well as patent licensing, Windows Embedded, MSN display advertising, and Windows Phone licensing system; devices, including Microsoft Surface, phones, and PC accessories; and search advertising, including Bing and Bing Ads. This segment also provides gaming platforms, including Xbox hardware, Xbox Live, video games, and third-party video games. The company markets and distributes its products through original equipment manufacturers (OEM), distributors, and resellers, as well as through online and Microsoft retail stores. Microsoft Corporation was founded in 1975 and is headquartered in Redmond, Washington.
MICROSOFT CORP One Microsoft Way Redmond, WA 98052 USA Phone: 425-882-8080 Fax: 425-706-7329 http://www.microsoft.com STOCK-AT-A-GLANCE
Below is a summary of the major fundamental and technical factors we consider when determining our overall recommendation of MSFT shares. It is provided in order to give you a deeper understanding of our rating methodology as well as to paint a more complete picture of a stock's strengths and weaknesses. It is important to note, however, that these factors only tell part of the story. To gain an even more comprehensive understanding of our stance on the stock, these factors must be assessed in combination with the stock’s valuation. Please refer to our Valuation section on page 5 for further information.
FACTOR SCORE
Growth
3.0
out of 5 starsMeasures the growth of both the company's income statement and cash flow. On this factor, MSFT has a growth score better than 50% of the stocks we rate.
weak strong
Total Return
4.5
out of 5 starsMeasures the historical price movement of the stock. The stock performance of this company has beaten 80% of the companies we cover.
weak strong
Efficiency
5.0
out of 5 starsMeasures the strength and historic growth of a company's return on invested capital. The company has generated more income per dollar of capital than 90% of the companies we review.
weak strong
Price volatility
5.0
out of 5 starsMeasures the volatility of the company's stock price historically. The stock is less volatile than 90% of the stocks we monitor.
weak strong
Solvency
4.5
out of 5 starsMeasures the solvency of the company based on several ratios. The company is more solvent than 80% of the companies we analyze.
weak strong
Income
4.0
out of 5 starsMeasures dividend yield and payouts to shareholders. The company's dividend is higher than 70% of the companies we track.
weak strong
THESTREET RATINGS RESEARCH METHODOLOGY
TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates. While our model is quantitative, it utilizes both subjective and objective elements. For instance, subjective elements include expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings. Objective elements include volatility of past operating revenues, financial strength, and company cash flows.
Our model gauges the relationship between risk and reward in several ways, including: the pricing drawdown as compared to potential profit volatility, i.e.how much one is willing to risk in order to earn profits; the level of acceptable volatility for highly performing stocks; the current valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's performance. These and many more derived observations are then combined, ranked, weighted, and scenario-tested to create a more complete analysis. The result is a systematic and disciplined method of selecting stocks.
Consensus EPS Estimates² ($)
IBES consensus estimates are provided by Thomson Financial
0.68 Q1 FY16 2.89 E 2017(E) 3.18 E 2018(E) INCOME STATEMENT Q4 FY16 Q4 FY15
Net Sales ($mil) 20,614.00 22,180.00
EBITDA ($mil) 6,100.00 7,878.00
EBIT ($mil) 4,190.00 6,385.00
Net Income ($mil) 3,122.00 -3,195.00
BALANCE SHEET
Q4 FY16 Q4 FY15 Cash & Equiv. ($mil) 113,240.00 96,526.00 Total Assets ($mil) 193,694.00 176,223.00
Total Debt ($mil) 53,687.00 35,292.00
Equity ($mil) 71,997.00 80,083.00
PROFITABILITY
Q4 FY16 Q4 FY15
Gross Profit Margin 70.56% 73.06%
EBITDA Margin 29.59% 35.51% Operating Margin 20.33% 28.79% Sales Turnover 0.44 0.53 Return on Assets 8.67% 6.91% Return on Equity 23.33% 15.22% DEBT Q4 FY16 Q4 FY15 Current Ratio 2.35 2.50 Debt/Capital 0.43 0.31 Interest Expense 345.00 247.00 Interest Coverage 12.14 25.85 SHARE DATA Q4 FY16 Q4 FY15
Shares outstanding (mil) 7,808 8,027
Div / share 0.36 0.31
EPS 0.39 -0.40
Book value / share 9.22 9.98
Institutional Own % NA NA
Avg Daily Volume 31,455,142 30,182,863
2 Sum of quarterly figures may not match annual estimates due to use of median consensus estimates.
FINANCIAL ANALYSIS
MICROSOFT CORP's gross profit margin for the fourth quarter of its fiscal year 2016 is essentially unchanged when compared to the same period a year ago. Even though sales decreased, the net income has increased, representing an increase to the bottom line. MICROSOFT CORP is extremely liquid. Currently, the Quick Ratio is 2.22 which clearly shows the ability to cover any short-term cash needs. The company's liquidity has decreased from the same period last year.
During the same period, stockholders' equity ("net worth") has decreased by 10.09% from the same quarter last year. Overall, the key liquidity measurements indicate that the company is very unlikely to face financial difficulties in the near future.
STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. To learn more visit www.TheStreetRatings.com.
RATINGS HISTORY
Our rating for MICROSOFT CORP has not changed since 6/8/2009. As of 8/11/2016, the stock was trading at a price of $58.30 which is .4% below its 52-week high of $58.50 and 46.8% above its 52-week low of $39.72. 2 Year Chart 2014 2015 $45 $50 $55 $60 B U Y : $ 43 .2 0
MOST RECENT RATINGS CHANGES
Date Price Action From To
8/11/14 $43.20 No Change Buy Buy
Price reflects the closing price as of the date listed, if available
RATINGS DEFINITIONS &
DISTRIBUTION OF THESTREET RATINGS (as of 8/11/2016)
40.26% Buy - We believe that this stock has the opportunity to appreciate and produce a total return of more than 10% over the next 12 months.
31.12% Hold - We do not believe this stock offers conclusive evidence to warrant the purchase or sale of shares at this time and that its likelihood of positive total return is roughly in balance with the risk of loss. 28.62% Sell - We believe that this stock is likely to decline by more than 10% over the next 12 months, with the risk involved too great to compensate for any possible returns.
TheStreet Ratings
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www.thestreet.com
Research Contact: 212-321-5381 Sales Contact: 866-321-8726
VALUATION
BUY. This stock's P/E ratio indicates a significant discount compared to an average of 59.48 for the Software industry and a premium compared to the S&P 500 average of 25.29. For additional comparison, its
price-to-book ratio of 6.32 indicates a significant premium versus the S&P 500 average of 2.83 and a discount versus the industry average of 7.47. The price-to-sales ratio is well above the S&P 500 average, but well below the industry average. Upon assessment of these and other key valuation criteria, MICROSOFT CORP proves to trade at a discount to investment alternatives within the industry.
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Price/Earnings
premium discount
MSFT 27.89 Peers 59.48
• Discount. A lower P/E ratio than its peers can signify a less expensive stock or lower growth expectations.
• MSFT is trading at a significant discount to its peers.
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5
Price/CashFlow
premium discount
MSFT 13.66 Peers 22.73
• Discount. The P/CF ratio, a stock’s price divided by the company's cash flow from operations, is useful for comparing companies with different capital requirements or financing structures. • MSFT is trading at a significant discount to its
peers.
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Price/Projected Earnings
premium discount
MSFT 18.33 Peers 50.56
• Discount. A lower price-to-projected earnings ratio than its peers can signify a less expensive stock or lower future growth expectations.
• MSFT is trading at a significant discount to its peers.
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Price to Earnings/Growth
premium discount
MSFT 0.74 Peers 0.81
• Average. The PEG ratio is the stock’s P/E divided by the consensus estimate of long-term earnings growth. Faster growth can justify higher price multiples.
• MSFT trades at a valuation on par to its peers.
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Price/Book
premium discount
MSFT 6.32 Peers 7.47
• Discount. A lower price-to-book ratio makes a stock more attractive to investors seeking stocks with lower market values per dollar of equity on the balance sheet.
• MSFT is trading at a discount to its peers.
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3
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Earnings Growth
lower higher
MSFT 43.15 Peers 19.14
• Higher. Elevated earnings growth rates can lead to capital appreciation and justify higher
price-to-earnings ratios.
• MSFT is expected to have an earnings growth rate that significantly exceeds its peers.
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Price/Sales
premium discount
MSFT 5.34 Peers 5.92
• Average. In the absence of P/E and P/B multiples, the price-to-sales ratio can display the value investors are placing on each dollar of sales. • MSFT is trading at a valuation on par with its
industry on this measurement.
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Sales Growthlower higher
MSFT -8.83 Peers 5.48
• Lower. A sales growth rate that trails the industry implies that a company is losing market share. • MSFT significantly trails its peers on the basis of
sales growth
DISCLAIMER:
The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but TheStreet Ratings cannot guarantee its accuracy and completeness, and that of the opinions based thereon. Data is provided via the COMPUSTAT® Xpressfeed product from Standard &Poor's, a division of The McGraw-Hill Companies, Inc., as well as other third-party data providers.
TheStreet Ratings is a division of TheStreet, Inc., which is a publisher. This research report contains opinions and is provided for informational purposes only. You should not rely solely upon the research herein for purposes of transacting securities or other investments, and you are encouraged to conduct your own research and due diligence, and to seek the advice of a qualified securities professional, before you make any investment. None of the information contained in this report constitutes, or is intended to constitute a recommendation by TheStreet Ratings of any particular security or trading strategy or a determination by TheStreet Ratings that any security or trading strategy is suitable for any specific person. To the extent any of the information contained herein may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. Your use of this report is governed by TheStreet, Inc.'s Terms of Use found at http://www.thestreet.com/static/about/terms-of-use.html.
