NASDAQ:MSFT
$28.15
(2/9 12:55PM)
+1.6%
| Open | $27.97 |
Mkt Cap | $243.1 Billion |
| High | $28.34 |
52Wk High | $31.50 |
| Low | $27.75 |
52Wk Low | $14.87 |
| Volume | 33.8 Million |
Avg Vol 10D | 82.5 Million |
MSFT Stock Evaluation
Since our last report on 01/30/2010, we have seen very little net price movement for MSFT. Also, there has been an increase in earnings expectations for MSFT, but not necessarily enough to improve MSFT’s valuation significantly. Therefore, we have chosen to maintain our Undervalued rating. Our further breakdown of fundamentals below will touch upon some of the factors we will want to see change to warrant a rating change.
Recommendation Summary
We are reaffirming our rating on MSFT as of this week’s report. While we firmly believe that valuing companies based on fundamentals is very useful, we are careful not to view historical valuations in a vacuum. It is foolish to believe that a stock will always revert to historical norms. So, although there is value in historical norms, they only tell part of the story. When the market or a sector breaks through strategic thresholds such as standard deviations of historical pricing multiples, we find it necessary to view history with a grain of salt as a new reality may be dawning.
In general, when sectors, in this case the Technology sector, have outperformed the market we tend to be a bit more hesitant to recommend stocks in that sector. However, even though the stocks in Technology have appreciated 56.6% in the last twelve months, we believe that MSFT is not quite due for an upgrade. Please see the full report of underlying research for more of our rationale of keeping a rating of Undervalued for at least another week.
Beginning with price changes, since our last report dated 01/30/2010 the price of MSFT has decreased by 0.57%, but this does not greatly change our outlook on MSFT.
It is encouraging that earnings guidance has been revised upwards by 14.97% per share. While the upward revision is not enough to cause an upgrade at this time, it is certainly worth paying close attention to developments of fundaments. If there were another positive revision, we would need to consider an upgrade.
MSFT Revenue
As a value investing shop, we are interested in seeing how MSFT's revenues measure up against past performances. One easily understandable way of doing that is to compare Price to Sales per share levels over a given time frame. Assuming it is available, Ockham prefers to look at ten years of history (for this stock there are 10 years of history available) and we weigh recent years more heavily. This allows us to find weighted average historical high and low Price to Sales ratios, which give us a better idea of the stock's current underlying value. Using this method, we have established a high range for Price to Sales of 7.52x and the low end of the range at 5.22x.
With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for MSFT of 3.51x is well below its normal historic Price to Sales levels. At a price of $28.02, MSFT is 45% below where we would expect to see it. Clearly, this stock looks undervalued compared to historical levels, at least on a Price to Sales basis. This will positively affect our analysis because it is rare to find a stock this far below historical norms, and we would expect some price appreciation to bring this metric back towards a more normal range.
MSFT Cash Earnings
Cash Earnings is always one of the most important factors to review for a company and, more importantly, an investment in a stock. MSFT is significantly below its historical average multiple of Cash Earnings. Looking at the last 10 years we can get a good understanding of what investors have grown to expect from MSFT. For example, MSFT's Cash Earnings ratio per share has fluctuated between 16.91 and 24.25 over this historical timeframe. This range is based upon a proprietary weighted methodology at Ockham, but can clearly show an investor where MSFT is with respect to prior business periods.
So with MSFT's current price (latest close of $28.02) and most recent level of Cash Earnings reported, we see significant opportunity from a value perspective. At its current price level, MSFT is 37% below its average level of Price to Cash Earnings on a historical basis. This means that investors were willing to pay for a much higher stock price than currently for the same level of Cash in the past, on a relative basis. There are a couple of important things to remember, however. First, value doesn't exist in a vacuum. So if the market doesn't recognize this value, even a great disparity in Price to Cash Earnings cannot force an immediate stock price reaction. Second, patience is key when looking at securities that have reached these levels of Price to Cash Earnings versus their historical norms. So be patient with MSFT.
MSFT Dividends
While it is not necessary to pay an attractive dividend or a dividend at all, to receive a positive rating from Ockham, we view dividends as an additionally helpful measure in determining the future potential of any company.
In MSFT’s case, the estimated annual dividend is $0.52 resulting in a current dividend yield of 1.86%. Similar to our review of Sales and Cash Earnings per share, we evaluate dividend yields from MSFT against the historic high and low levels over the past 10 years. The highest dividend yield from MSFT over this period was 3.50% while the lowest dividend yield was 0.00% Management at MSFT has encouraged us with a current dividend yield of 6.29% above the historical median.
Power Lunch Discussed the Latest Development of Microsoft Corporation
As always, the latest news on MSFT is available to Ockham clients through RazorWire, and it was mentioned recently on Power Lunch.
At present, Ockham has a valuation stance of Undervalued on MSFT, as we could see significant price appreciation based on current fundamentals like cash earnings and revenue. Our sentiment indicator, provided through the Motley Fool CAPS survey, suggests that investors are neutral overall towards MSFT and think that it will generally perform in-line with the S&P 500. When taking into account the amount of news coverage each stock normally sees as a percentage of the total, Microsoft Corporation has actually sunk a bit in comparison to the others.
“… Losing out on a chance to invest in facebook early on, thanks to MICROSOFT, still with google's move it's clear social networking, facebook, bing, myspace, twitter gaining ... …”
See Who is Talking About News from MSFT on Power Lunch
As always, the latest news on MSFT is available to Ockham clients through RazorWire, and it was mentioned recently on Power Lunch.
When taking into account the amount of news coverage each stock normally sees as a percentage of the total, Microsoft Corporation has actually sunk a bit in comparison to the others. At present, Ockham has a valuation stance of Undervalued on MSFT, as we could see significant price appreciation based on current fundamentals like cash earnings and revenue. Our sentiment indicator, provided through the Motley Fool CAPS survey, suggests that investors are neutral overall towards MSFT and think that it will generally perform in-line with the S&P 500.
“… 6% of that is coming up from MICROSOFT ask google. Up two points in terms of impact and apple as well. Dell continuing to extend gains. …”
Closing Bell: MSFT is Among Most Active Stocks in the News Today
MSFT has been one of the most active stocks in the news today, so investors in it will want to pay attention to what is happening.
When taking into account the amount of news coverage each stock normally sees as a percentage of the total, Microsoft Corporation has actually sunk a bit in comparison to the others. At present, Ockham has a valuation stance of Undervalued on MSFT, as we could see significant price appreciation based on current fundamentals like cash earnings and revenue. Our sentiment indicator, provided through the Motley Fool CAPS survey, suggests that investors are neutral overall towards MSFT and think that it will generally perform in-line with the S&P 500.
“… You got to wonder as we approach what could be luck a nice console upside cycle, new technology is coming, new technology for x-box and MICROSOFT. New technology from nintendo. …”
There is Significant News on MSFT:Among the Twenty Most Active Stocks in the News
MSFT has been one of the most active stocks in the news today, so investors in it will want to pay attention to what is happening.
Crowd sentiment is neutral from the millions of opinions submitted through Motley Fool CAPS, which suggests most investors on their platform believe Microsoft Corporation will perform just about the same as the index. As we analyze the results from RazorWire, one thing we do is rank each stock in terms of amount of news coverage. Recently, MSFT has been less covered in the news compared to the rest of our universe of stocks. We consider MSFT as Undervalued at the current price of $27.71. According to our methodology, this stock has appreciation potential based on current fundamentals which only improves if earnings or revenue surprise.
“… Disney might be interested, even MICROSOFT. We'll see if any of this kind of fire comes up on the company's conference call. > > I was going to ask you that. …”
There is Significant News on MSFT:Among the Twenty Most Active Stocks in the News
We are observing a lot of attention being paid to MSFT in the news, so if you hold the stock you may want to take a look at what is going on.
The Motley Fool CAPS crowd believes this stock will perform generally in line with the benchmark, or in other words the crowd is neutral. We noticed recently that in comparison to all other stocks we analyze in the news; MSFT has received less coverage from the financial media in business television and blogs. Based on our methodology, Microsoft Corporation should hold some appeal to value investors as we view it as Undervalued.
“… Motion control upgrades from sonny, project nital from MICROSOFT, wii technology. New speculation about a possible takeover surrounding ea and involving disney. …”
Stocks in the News: Microsoft Corporation Among the Twenty Most Discussed Stocks
We are observing a lot of attention being paid to MSFT in the news, so if you hold the stock you may want to take a look at what is going on.
Crowd sentiment is neutral from the millions of opinions submitted through Motley Fool CAPS, which suggests most investors on their platform believe Microsoft Corporation will perform just about the same as the index. We consider MSFT as Undervalued at the current price of $28.01. According to our methodology, this stock has appreciation potential based on current fundamentals which only improves if earnings or revenue surprise. As we analyze the results from RazorWire, one thing we do is rank each stock in terms of amount of news coverage. Recently, MSFT has been less covered in the news compared to the rest of our universe of stocks.
“… Should MICROSOFT (MSFT) be doing a giant deal in the mobile phone sector? As Kara Swisher of AllThingsD notes today, the software giant is expected to unveil the latest version ... …”
Heard on Tech Trader Daily-Barron's: CEO of MSFT Discussed
Keeping up with a CEO is one way that we try to better understand the direction of a company, and there was talk about MSFT management on Tech Trader Daily-Barron's.
At present, Ockham has a valuation stance of Undervalued on MSFT, as we could see significant price appreciation based on current fundamentals like cash earnings and revenue. When taking into account the amount of news coverage each stock normally sees as a percentage of the total, Microsoft Corporation has actually sunk a bit in comparison to the others. Our sentiment indicator, provided through the Motley Fool CAPS survey, suggests that investors are neutral overall towards MSFT and think that it will generally perform in-line with the S&P 500.
“… Swisher writes that “many sources at MICROSOFT” say CEO Steve Ballmer has expressed interest in buying RIMM “many times,” while also dismissing any interest in Palm. …”
Interested in MSFT? See What the Pundits Said on WSJ Marketbeat
The latest news from WSJ Marketbeat on MSFT is available through Ockham's news analytics platform RazorWire.
We noticed recently that in comparison to all other stocks we analyze in the news; MSFT has received less coverage from the financial media in business television and blogs. The Motley Fool CAPS crowd believes this stock will perform generally in line with the benchmark, or in other words the crowd is neutral. Based on our methodology, Microsoft Corporation should hold some appeal to value investors as we view it as Undervalued.
“… Ex-Financials, earnings have beaten expectations by 6%, led by Consumer Discretionary (mainly Autos, EK, and DHI), Info Tech (AAPL, INTC, and MSFT), and Materials (FCX, DOW, and ... …”
See Who is Talking About News from MSFT on Zero Hedge
The latest news from Zero Hedge on MSFT is available through Ockham's news analytics platform RazorWire.
Based on our methodology, Microsoft Corporation should hold some appeal to value investors as we view it as Undervalued. We noticed recently that in comparison to all other stocks we analyze in the news; MSFT has received less coverage from the financial media in business television and blogs. The Motley Fool CAPS crowd believes this stock will perform generally in line with the benchmark, or in other words the crowd is neutral.
“… Notable dispositions included Bill Gates selling $85 million worth of MSFT, Roger Pensky dumping over $100 million, and Juniper Chairman Scott Kriens selling $12. …”
Interested in MSFT? See What the Pundits Said on Squawk On The Street
Microsoft Corporation is one of the thousands of companies that Ockham has news analytics on, and it was recently discussed on Squawk On The Street.
Based on our methodology, Microsoft Corporation should hold some appeal to value investors as we view it as Undervalued. We noticed recently that in comparison to all other stocks we analyze in the news; MSFT has received less coverage from the financial media in business television and blogs. The Motley Fool CAPS crowd believes this stock will perform generally in line with the benchmark, or in other words the crowd is neutral.
“… You listen to people like john chambers or the management of MICROSOFT or elsewhere, their businesses are terrific. So I think the stocks could go higher. No doubt. > > …”