Credit: Shutterstock photoMicrosoft MSFT saw its stock price pop over 1% Tuesday morning as it inches toward its all-time high. With no major news to speak of, let's see why Microsoft stock looks like a strong buy at the moment, especially as the likes of Facebook FB and Alphabet's GOOGL Google face heightened scrutiny in Washington.
Recent News
Microsoft announced a few weeks back that it will introduce a subscription service for Xbox that mimics how Apple AAPL treats some of its high-priced iPhones. The software and hardware powerhouse will let consumers bundle an Xbox, an Xbox Live Gold subscription-which allows users to play multiplayer games online and access free games-and the Xbox Game Pass for one monthly cost.
Microsoft's idea here is pretty simple: to create more brand loyalty and more consistent revenue streams. At the end of the two-year period, Microsoft will theoretically be able to offer upgrades on newer models in what MSFT likely hopes is a somewhat limitless cycle. The move also highlights the growing popularity and strength of subscription services, from Netflix NFLX to Spotify SPOT .
Meanwhile, Microsoft has continued to jump deeper into artificial intelligence, IoT, and cloud computing. Microsoft, which grabbed 14% of the cloud market last quarter, is currently the second-largest cloud provider behind Amazon's AMZN 34%. The firm also comes in well ahead of IBM's IBM 8%, Google's 6%, and Alibaba's BABA 4%.
The company has also bolstered its business through acquisitions as well, which includes its June purchase of open source software powerhouse GitHub. Microsoft also announced in July a five-year deal with Walmart WMT that will see the retail giant use MSFT's cloud and AI tech.
Stock Price
Shares of Microsoft have climbed roughly 30% since the start of the year, which outpaces its industry's 11% and the S&P 500's 8% jump. MSFT stock continued to top the index and its industry over the last six months, even though it has slowed down recently. Investors will also notice that Microsoft stock has been on an impressive run over the last two years. This helps MSFT stock sit right near its new 52-week and all-time high of $112.78 per share.
Valuation
Moving on, investors need to understand Microsoft's current valuation picture. MSFT stock is trading at 25.2X forward 12-month Zacks Consensus EPS estimates, which represents a significant discount compared to its industry's 32.8X average. It is worth pointing out that Microsoft has traded as low as 22.2X over the last year with a one-year median of 24.4X.
Investors will also clearly see that MSFT's current valuation picture appears stretched compared to where it has traded over the last five years. However, the entire computer software-services industry has climbed steadily as well, and MSFT has always traded at a discount.
Outlook
Looking ahead, our current Zacks Consensus Estimate is calling for Microsoft's fiscal Q1 revenues to climb by nearly 13.4% to hit $27.83 billion. MSFT's fiscal 2019 revenues are expected to reach $122.36 billion, which would mark a roughly 11% jump.
At the other end of the income statement, Microsoft's adjusted quarterly earnings are projected to climb by over 14% to hit $0.96 per share, while its full-year EPS figure is expected to expand by over 9.5%.
Plus, the firm has earned 10 quarterly earnings estimate revision over the last 60 days, against zero downward changes. MSFT has also earned 15 full-year upward earnings estimate revisions, with 100% agreement to the upside during this same time period.
Bottom Line
Microsoft's impressive earnings estimate revision trends help the company earn a Zacks Rank #1 (Strong Buy). Coupled with the firm's growing strength in cloud computing, along with its overall top and bottom-line outlook, MSFT stock appears to be one that investors should think about buying at the moment.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
