A profit preview is not usually initiated with a chart, but in the case of Microsoft (MSFT), I think this is justified.
(Source: Worden diagrams)
On Microsoft’s historic bull market from the mid-1
Microsoft is in a second historic bull market run, largely based on Azure and the linchpin towards the cloud that Satya Nadella led after ValueAct acquired a 1% stake in Microsoft in April 2013 and Satya within the next year at CEO has been appointed.
The company has the double advantage of the installed base from the 1980s and 1990s, which still accounts for 2/3 of the business and is growing well, and then adds the ‘Intelligent Cloud’, which accounts for 1/3 of the turnover but the operating result The growth in the past 4 years has been excellent:
(Source: Internal evaluation table)
I want readers to read the “Year-over-year operating results” section and then find the Intelligent Cloud line. Check this growth rate since March 2016.
(Source: Internal evaluation table)
With the launch of Intelligent Cloud, the operating margin also increases (not by chance).
EPS and sales estimates
|Q4 ’20 Est.||Q3 ’20||Q2 ’20||Q1 ’20|
|GJ ’23 Est. EPS||$ 7.74||$ 7.45||$ 7.76||$ 7.62|
|GJ ’22 Est. EPS||$ 7.17||$ 7.16||$ 7.27||$ 6.97|
|GJ ’21 Est. EPS||$ 6.24||$ 6.21||$ 6.31||$ 5.93|
|GJ ’23 Est. EPS growth rate||8th%||4%||7%||9%|
|GJ ’22 Est. EPS growth rate||fifteen%||fifteen%||fifteen%||fifteen%|
|GJ ’21 Est. EPS growth rate||10%||9%||11%||12%|
|GJ ’23 P / E.||27x||24x||22x||18x|
|GJ ’22 P / E.||29x||25x||24x||20x|
|GJ ’21 P / E.||33x||29x||27x||23x|
|FY23 Rev. Est. (Billion US dollars)||$ 192.4||$ 183.2||$ 191.6||194.7|
|FY ’22 Rev. Est.||$ 175.5||$ 175.5||$ 178.4||$ 174.5|
|GJ ’21 Rev. Est.||$ 156.6||$ 156.5||$ 159.0||
|GJ ’23 Est. Rev. growth rate||10%||4%||7%||12%|
|GJ ’22 Est. Rev. growth rate||12%||12%||12%||12%|
|GJ ’21 Est. Rev. growth rate||11%||11%||12%||11%|
(Estimation source: IBES data from Refinitiv on July 21, 20)
When you look at the last four quarters of the revision of estimates, with the first column containing the current estimates immediately prior to the earnings announcement on Wednesday, July 22, 2020, readers can clearly see Microsoft’s multiple expansion as P / E recognize The estimate for the 2021 financial year rose from 23x three quarters to 33x shortly before the earnings were published.
While this is a slight negative, the positive thing is that earnings estimates for fiscal years 21 and 22 were fairly stable during the pandemic, which was somewhat surprising.
Summary / conclusion
Up until the last quarter, more than 10% of MSFT’s market cap as of March 31, 20 was in cash and equivalents, and unlike banks, technology giants have no such restrictions on share buybacks.
There are many reasons to worry about Microsoft’s position as 1 or 2 by market cap in the S&P 500, as this group has been brand new all year round and has drawn much of the attention of the mainstream media. The reversal of the Nasdaq 100 last week on Monday, July 13, 2020, has received a lot of attention, and the relative strength of the Nasdaq has since waned.
Apple (AAPL) is in a 20-year bull market, Facebook (FB) faces serious brand and other issues, Google (toget, togetL) gets the attorney general’s attention, while Microsoft appears to be losing weight on the radar and bad press to avoid.
The Street expects MSFT to post $ 1.34 earnings per share for the fourth quarter ended June 4 on sales of $ 36.5 billion when the company closes its financial results after the close on Wednesday night, July 22, 2020 , for an expected growth of 11% year-on-year and published 8% each. EPS has been cut by a few cents since the March quarter, but the consensus sales estimate of $ 36.5 billion is actually slightly higher than 90 days ago, despite COVID-19.
How many companies do you know that have both EPS and sales growth of 11% and 8%, respectively, in a quarter in which the S&P 500’s EPS is expected to decrease by 40%?
In the quarters Q4 ’20 and Fiscal ’21 (next twelve months) everything is still about Intelligent Cloud and Azure. Microsoft remains in the sweet spot of the cloud market and in second place on Amazon Web Services (AWS).
Thanks to COVID-19 and the pandemic, cloud acceptance is only accelerating.
Paying 33 times earnings for fiscal 21 for a stock that is expected to grow 10 to 15% always seems salty, but the estimated revisions have held up pretty well over the past 90 to 180 days.
MSFT reports on Wednesday July 22 after the close of trading.
Disclosure: I am / we have been MSFT for a long time. I wrote this article myself and it expresses my own opinion. I don’t get any compensation (except from Seeking Alpha). I have no business relationship with a company whose shares are mentioned in this article.