MSFT Quick Quote MSFT - Free Report) stock is up just 7% over the past six months compared to the Computer and Technology sector’s 25% and Apple’s ( AAPL Quick Quote AAPL - Free Report) 40%. This means the historic tech firm might be poised to breakout and its upcoming second quarter FY21 financial results that are due out on Tuesday, January 26 could act as a potential catalyst. Bigger than Ever
Even in a crowded and fluid technology industry, Microsoft has never been more influential and diversified. Clearly, its $137 billion in cash and equivalents helps it continue to make strategic acquisitions and bets on what’s next. This includes its recently announced investment in General Motors (
GM Quick Quote GM - Free Report) self-driving car company Cruise.
Microsoft is also a cloud computing powerhouse alongside Amazon (
AMZN Quick Quote AMZN - Free Report) . And the company’s ability to expand its reach in the industry that is now the backbone for much of the endless amounts of data and software that businesses and consumers alike depend on 24/7 will help it grow for years.
Intelligent Cloud was MSFT’s biggest top-line contributor out of its three core divisions last quarter, and its cloud efforts now play a role across the entire company. This includes Microsoft Office offerings, which remain integral to millions of people. Microsoft has also advanced its Xbox-heavy gaming unit and its consumer devices space, highlighted by the Surface and others, continues to grow.
Furthermore, the pandemic showcased its portfolio of remote work offerings that compete against Zoom Video (
ZM Quick Quote ZM - Free Report) and others. Microsoft’s Teams software will continue to prove valuable in a world where Salesforce ( CRM Quick Quote CRM - Free Report) paid $28 billion, or 26X forward 12-month sales to buy work-based communication firm Slack ( WORK Quick Quote WORK - Free Report) —which is the second-largest deal in software history.
MSFT has been on a nice run, up about 150% in the last three years, which matches Amazon and crushes Alphabet Inc. (
GOOGL Quick Quote GOOGL - Free Report) . More recently, the stock is up about 37% in the past year to match the broader tech space. But as we mentioned at the top, it has fallen behind over the last six months. The stock closed regular trading Thursday at around $225 a share, which places it around 3% off its early September 2020 highs.
MSFT has hovered around its 50-day moving average for the past six months, as much of the rest of the tech world, from Tesla (
TSLA Quick Quote TSLA - Free Report) and beyond soars to new highs. And a company with its outlook and other fundamentals, might not stay there much longer. Plus, Microsoft’s 1% dividend yield nearly matches the 10-year U.S. Treasury and tops Apple’s 0.60%.
Zacks estimates call for MSFT’s adjusted Q2 earnings to climb 8.6% to reach $1.64 per share and its sales to pop 8.7% to $40.12 billion. The company’s consensus earnings estimates have remained unchanged over the last 60 days. And MSFT consistently tops our earnings estimates, including a 12% average over the trailing four periods and a 19% beat last quarter.
Looking ahead, the tech firm’s revenue is projected to climb by 10% in fiscal 2021 and 2022. These projections would come on top of three straight years of between 13% to 15% revenue expansion.
Meanwhile, its adjusted earnings are expected to climb 17% and 10%, respectively over this stretch. Both of these would mark strong and steady growth for a company that’s set to rake in nearly $160 billion this year.
Microsoft sits at a Zacks Rank #3 (Hold) right now, with an “A” grade for Growth. The stock is also trading at a nearly 10% discount compared to its own year-long highs in terms of forward sales, while the tech sector and its industry are trading at all-time highs.
MSFT hasn’t missed our bottom-line estimates in almost five years, and it hasn’t always made big moves around earnings. So, it might not be the best near-term play for those looking to cash in quickly after earnings.
That said, buying one of the world’s most valuable companies that has lagged the market for six months at a small discount to its own highs in terms of price and valuation hardly seems like a risk over the long haul. And 20 out of the 22 brokerage recommendations that Zacks has for Microsoft come in at a “Strong Buy,” with the other two at a “Buy.”
More Stock News: This Is Bigger than the iPhone! It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market. Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2021. Click here for the 6 trades >>