Microsoft: The Reliable Stock That Works
There are companies that show steady growth, generate regular dividends, turn out consistently quality products – in short, there are companies that just do everything right, and they do it without generating headlines and “buzz,” without making waves. They don’t need to make waves. Some of them have been there, living on the cutting edge, and some have always been a little ordinary, and now they’re among the mainstays of a strong portfolio.
Microsoft Corporation (MSFT – Research Report) is one of these. Once upon a time, Microsoft was a disruptive force in the tech field; today, it is a mature giant in the software field, generating the returns that shareholders love. It’s become a bit staid, even a bit predictable as an investment. But that’s not to say that there’s nothing to see, however, because Microsoft offers plenty of red meat for serious investors. Let’s dip into TipRanks’ data, and find out why.
Fundamental Advantages
For starters, Microsoft is worth over $900 million. It hasn’t hit the trillion-dollar mark – as Apple (AAPL) and Amazon (AMZN) both did last summer – but as market volatility heated up in the final quarter of 2018, Microsoft was in a slow-motion game of musical chairs for the top market cap spot, sharing that position with Apple, Amazon, and Alphabet (GOOGL). MSFT is currently in second place.
The high market cap is supported, of course, by high share prices. We all know how the market swooned last year, and even giants like Microsoft felt the hurt, and the main indexes bottomed out on Christmas Eve. Since then, Microsoft is up 27%, matching the NASDAQ’s performance.
And finally, Microsoft offers investors a stable dividend. The yield is modest, at 1.54%, but the company has a 14-year record of raising the quarterly payout. The current payment is 46 cents per quarter, annualizing to $1.84.
Beating the Estimates
Along with investor advantages, Microsoft has a history of robust financial performance. For the last 10 quarters, the company has beaten estimates on EPS. Last quarter, Microsoft reported EPS of $1.10, just over the $1.09 estimate, and the $32.47 billion in revenues were in line with the forecasts. On a less optimistic note, the company’s key cloud product, Azure, showed slower growth compared to the previous quarter.
Looking forward to the Q3 FY19 report coming up on April 25, Microsoft is expected to report $1 in earnings per share. Earnings are expected to rise later in the year, with Q4 forecast at $1.18.
Checking in with the Analysts
Microsoft has been getting a string of positive reviews and buy ratings – nine, just since January 31. Most recently, Keith Weiss from Morgan Stanley said, “Software is seen being the fastest growing sector within IT, according to the survey, and Microsoft’s differentiated Public Cloud offering and solution portfolio positions it as the top secularly positioned firm in Tech.” Weiss gives MSFT a bullish $140 price target, suggesting a 16% upside to the stock.
Also taking an upbeat stance on Microsoft is RBC Capital’s, Ross MacMillan. MacMillan expresses confidence in Microsoft’s “competitive position, sustained high rates of growth and adoption of higher tier services.” He sees these three factors standing behind Microsoft’s success and strong market position. In line with his confidence, he sets a $130 price target, indicating a potential upside of 8%.
Finally, back in February, Wedbush’s Daniel Ives added Microsoft to his firm’s “Best Ideas” list. Ives believes that Microsoft is strongly positioned in the near-term, saying, “Microsoft remains in an enviable position heading into the next 12 to 18 months on the heels of its cloud success and is firing on all cylinders around its Office 365 and Azure strategic vision based on our recent checks in the field.” Ives sets another $140 price target on this stock.
Over the past three months, Microsoft has received 19 buy ratings, 1 hold, and 1 sell from the best performing analysts in the TipRanks database, giving the company a ‘Strong Buy’ consensus rating. The stock is currently selling for $119, so the average price target of $125 implies a 4% upside potential.