Tech behemoth Microsoft Corporation (MSFT) pioneers the development, licensing, and support of software, services, devices, and solutions. It offers various products such as PCs, tablets, gaming and entertainment consoles, video games, and Search services, including Bing and Microsoft advertising.
On April 17, MSFT and Epic announced the expansion of their strategic collaboration to integrate generative Artificial Intelligence (AI) into healthcare. Combining the power of MSFT’s Azure OpenAI Service with Epic’s EHR software would enable the company to tackle urgent healthcare challenges and provide comprehensive solutions to providers.
Moreover, on March 28, MSFT achieved a significant cybersecurity advancement with Microsoft Security Copilot, the next-gen AI technology. The innovative tool would allow defenders to swiftly detect, respond to threats, and comprehensively understand the threat landscape.
In an industry where cybersecurity professionals face overwhelming odds, Security Copilot empowers MSFT to tip the power balance in its favor. It is the first generative AI security product, allowing defenders to operate at AI's speed and scale.
The company's dedication to innovation is evident through its initiatives for AI adoption in this AI-driven era. With a focus on AI, the company’s progress has led to significant expansion and established it as the preferred choice for customers seeking cutting-edge solutions.
Satya Nadella, chairman and CEO of MSFT, said, “Across the Microsoft Cloud, we are the platform of choice to help customers get the most value out of their digital spend and innovate for this next generation of AI.”
Shares of MSFT have gained 31.5% over the past six months to close its last trading session at $335.40. Moreover, the stock is ranked #2 on Robinhood 100.
Here is what could shape MSFT’s performance in the upcoming months:
Robust Financials
During the fiscal 2023 third quarter that ended March 31, MSFT’s revenue increased 7.1% year-over-year to $52.86 billion. Its gross margin grew 8.8% from the prior year’s quarter to $36.73 billion. Additionally, the company’s net income rose 9.4% year-over-year to $18.30 billion, while its EPS came in at $2.45, up 10.4% from the previous year’s period.
Furthermore, as of March 31, 2023, the company’s cash and cash equivalents stood at $26.56 billion, compared to $13.93 billion as of June 30, 2022. Additionally, MSFT’s total assets amounted to $380.09 billion, compared to $364.84 billion as of June 30, 2022.
Attractive Dividends
MSFT has a record of increasing its dividends for 18 consecutive years. The company pays a $2.72 per share dividend annually, translating to a 0.81% yield on the current price level. Its dividend payouts have grown at a 10.2% CAGR over the past three years, and its four-year average dividend yield is 0.98%.
Favorable Analyst Estimates
For the fiscal 2023 fourth quarter ending June 2023, analysts expect MSFT’s revenue to increase 6.9% year-over-year to $55.42 billion. The company’s EPS for the ongoing quarter is expected to rise 14.7% year-over-year to $2.56. Moreover, it has topped the consensus EPS estimates in three of the trailing four quarters.
In addition, analysts expect MSFT’s revenue and EPS for the fiscal year (ending June 2023) to increase 6.6% and 4.7% year-over-year to $211.41 billion and $9.64, respectively. In addition, the company’s revenue and EPS for the next fiscal year 2024 are expected to grow 11.5% and 13.9% from the prior year to $235.69 billion and $10.98, respectively.
High Profitability
MSFT’s trailing-12-month gross profit margin of 68.52% is 39.2% higher than the 49.24% industry average. Its trailing-12-month EBITDA margin of 48.21% is 484.4% higher than the 8.25% industry average. Also, the stock’s trailing-12-month net income margin of 33.25% is significantly higher than the 2.01% industry average.
Furthermore, the company’s ROCE, ROTC, and ROTA of 38.60%, 20.87%, and 18.16% compare to the industry averages of 0.50%, 1.66%, and 0.02%, respectively.
POWR Ratings Show Promise
MSFT’s sound 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 taking into account 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. MSFT has a B grade for Sentiment and Quality, consistent with its optimistic analyst expectations and higher-than-industry profitability. In addition, the stock has a B grade for Stability, in sync with its five-year beta of 0.93.
MSFT is ranked #9 in the 50-stock Software - Business industry. Click here to access MSFT’s Momentum, Growth, and Value.
View all the top stocks in the Software – Business industry here.
Bottom Line
Tech giant MSFT’s revenue grew at a CAGR of 14.4% over the past three years. Its EBITDA and net income increased at CAGRs of 16% and 14.3% over the same period, while EPS grew at a 15.4% CAGR. Furthermore, MSFT’s recent strategic initiatives propel the company to explore new markets, enrich its product offerings, and attract a larger customer base.
Given MSFT’s robust financial performance, attractive profitability, reliable dividend, and promising growth prospects, investing in this tech stock in June could be wise.
How Does Microsoft Corporation (MSFT) Stack Up Against Its Peers?
While MSFT has an overall POWR Ratings grade of B, equating to a Buy, check out these other stocks within the Software - Business industry with an A (Strong Buy) rating: VMware Inc. (VMW), F5 Inc. (FFIV), and Yext, Inc. (YEXT).
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MSFT shares were trading at $337.45 per share on Monday afternoon, up $2.05 (+0.61%). Year-to-date, MSFT has gained 41.37%, versus a 12.44% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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