The latest wave of technology surge has helped Microsoft (MSFT - Free Report) to become a triple-digit player. Shares of MSFT surged past $100 for the first time in its 43-year history, underscoring the strong growth prospect of the world's largest software maker and marking a huge victory for CEO Satya Nadella.
Since Nadella took over, the company has strongly turned around to become a key player in the cloud computing business, which includes products such as Office 365, Dynamic 365 and the flagship Azure computing platform (read: Tech ETFs to Lead Again On Power-Packed Earnings).
In the year-to-date time frame, Microsoft shares climbed nearly 19%, easily outpacing returns of 15.5% for the Computer-Software industry. This run-up in share price has pushed Microsoft’s market capitalization to around $776 billion. The recent increase has also aided the world's largest software maker to outdo Google parent, Alphabet (GOOGL - Free Report) by becoming the third most valuable tech company in terms of market capitalization, trailing Amazon (AMZN - Free Report) and Apple (AAPL - Free Report) .
The bullish trend is likely to continue given its latest acquisition news and strong fundamentals.
Microsoft has agreed to acquire a leading software development platform, GitHub, for $7.5 billion in an all-stock deal. Pending customary and regulatory approvals, the acquisition is expected to close by the end of the calendar year and will mark the company’s biggest acquisition since the $26 billion purchase of LinkedIn in 2016.
The deal will help Microsoft to get back to its roots and bolster its cloud-computing business —Azure. It will be able to lure more code developers who use GitHub. We note that Azure recorded a 93% jump in revenues in the third quarter ended Mar 31. Per research firm, Canalys, Azure holds the second position in the $15.6 billion cloud computing market with 14% share, trailing Amazon Web Services with 32% market share (read: ETFs With Heavy Microsoft Exposure to Fly Post Q3 Results).
Though the deal will result in minimal dilution of less than 1% in earnings per share in fiscal 2019 and 2020 on a non-GAAP basis, it will be accretive to operating income in fiscal 2020.
Microsoft seems on track to record its strongest annual revenue growth for more than a decade, thanks to its growing cloud business growth. It expects revenues in the range of $28.8-$29.5 billion for the final quarter of 2018.
The Zacks Consensus Estimate rose from $3.65 to $3.84 for this fiscal year (ending June 2018) over the past 60 days. This represents substantial growth of 16.01% against the industry’s average decline of 11.71%. Revenues are expected to grow 15.48%, higher than the industry’s average growth of 7%.
Microsoft currently carries a Zacks Rank #3 (Hold) and falls within a top-ranked Zacks industry (top 25%), suggesting significant upside for the stock over the coming days. About 81% of the analysts have a Strong Buy or Buy rating on Microsoft with an average target price of $107.44, per the analysts compiled by Zacks (see: all the Technology ETFs here).
ETFs to Buy
Given the bullish fundamentals, investors seeking to tap this software leader could consider the following ETFs. These funds have a double-digit allocation to Microsoft and most of them have a Zacks ETF Rank # 2 (Buy) or #3 (Hold).
iShares Dow Jones US Technology ETF (IYW - Free Report) : Microsoft exposure – 13.6%
iShares Evolved U.S. Technology ETF (IETC - Free Report) : Microsoft exposure – 12.7%
Select Sector SPDR Technology ETF (XLK - Free Report) : Microsoft exposure – 11.9%
Vanguard Information Technology ETF (VGT - Free Report) : Microsoft exposure – 10.5%
MSCI Information Technology Index ETF (FTEC - Free Report) : Microsoft exposure – 10.4%
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