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Bull of the Day: Microsoft (MSFT)

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Headquartered in Redmond, WA, Microsoft (MSFT - Free Report) is one of the largest broad-based technology providers in the world. While software is the most important revenue source, the company also provides hardware and online services.

Additionally, Microsoft offers support services in the form of consultation, training and certification of system integrators and developers.

Excellent Results Driven by Cloud

Microsoft reported fourth-quarter fiscal 2018 earnings of $1.13 per share, ahead the Zacks Consensus Estimate of $1.07. Earnings were up 6.6% on a year-over-year basis.

Revenues surged 17.5% year-over-year to $30.09 billion and beat our estimate of $29.21 billion. Revenue from the Intelligent Cloud segment, which includes its Azure business, increased 23% while Azure revenue increased 89%.

Annual revenue topped $100 billion for the first time.

“Our early investments in the intelligent cloud and intelligent edge are paying off, and we will continue to expand our reach in large and growing markets with differentiated innovation.” said the CEO.

The guidance was also quite strong.

Earlier, the company announced that Walmart had signed a five-year deal to use its cloud services.

During the quarter, the company had announced that it is acquiring coding-collaboration site GitHub for $7.5 billion. They had acquired LinkedIn in 2016 for $27 billion.

These acquisitions continue to expand Microsoft’s total addressable market.

Rising Estimates

After a strong quarterly report, analysts have significantly raised their estimates for the company.

Zacks Consensus Estimates for the current and the next fiscal year have increased to $4.25 per share and $4.75 per share respectively, from $3.96 per share and $4.52 per share, before the results.

The company has missed only twice in the past twenty quarters as you can see from the beautiful chart below. The average surprise for the past four quarters was 11.4%.

Bottom Line

Microsoft has re-invented itself since Satya Nadella took over as CEO about four years back. The company shifted its focus from traditional software sales to cloud computing services.

The company invested in its cloud segments—Azure and Office 365--in a big way and that is paying off now. They are now the second biggest player in the space, behind Amazon and their cloud business is growing faster than Amazon’s AWS.

The stock has more than tripled since Nadella became the CEO. With a Zacks Rank #1 (Strong Buy), it looks well positioned to continue its uptrend. Further, Zacks industry and sector ranks are in the top 27% and 38% respectively.

Trading at 25.3 times forward P/E, its valuation looks rather reasonable compared to some peers’.

Disclosure: I own shares of Microsoft in my personal portfolio.

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