馃獰 MICROSOFT: ANALYSIS 馃獰
Microsoft Corporation develops and supports software, services, devices and solutions worldwide. The Productivity and Business Processes segment offers office, exchange, SharePoint, Microsoft Teams, office 365 Security and Compliance, Microsoft viva, and Microsoft 365 copilot; and office consumer services, such as Microsoft 365 consumer subscriptions, Office licensed on-premises, and other office services. This segment also provides LinkedIn; and dynamics business solutions, including Dynamics 365, a set of intelligent, cloud-based applications across ERP, CRM, power apps, and power automate; and on-premises ERP and CRM applications. The Intelligent Cloud segment offers server products and cloud services, such as azure and other cloud services; SQL and windows server, visual studio, system center, and related client access licenses, as well as nuance and GitHub; and enterprise services including enterprise support services, industry solutions, and nuance professional services.
Based on a sample of the last year [4Q/23 TTM], its average margins have been:
- Gross margin: ≈ 69.1%
- Operating margin: ≈ 42.7%
- EBITDA margin: ≈ 50.0%
- Net margin: ≈ 35.2%
Pros:
- AZURE is its strong segment and MSFT is implementing AI applications in many of its areas, with few companies that can compete with them
- Strong margins for their sector with an oligopoly position (Amazon, Google and Apple could be its best competitors)
- Very low net debt levels
Cons:
- In some case, Google could rival Google Sheets and BARD/LAMBDA. Still, it would be an oligopoly and this scenario is not soon
- Possible slowdown in other areas such as Videogames or Social Media segment. Furthermore, it has been a slightly reduction in their Growth CAPEX and Free Cash Flow
- High valuation if a correction in SP500 is considering
Based on the last report, their normalized EPS was ≈ $11.10 USD and its last average ROIC [TTM] was ≈ 24.01%. If an average Forward PER 31 is set as a benchmark with an EPS intensity of ± 22.2%, the potential forward spread target for the next 12 months could be:
- Optimistic: ≈ $420.6 USD
- Neutral: ≈ $344.3 USD
- Negative: ≈ $267.93 USD
At least, an EPS of $2.46 USD is required for the next quarter, to keep the metrics.
In other hand, if an average Forward EV/EBITDA 23 is set, an EBITDA increases of 20%, a Net Debt increases of -22.4%, a Dividends increase of -17.6% and Shares Outstanding increases of -0.35%, the potencial spread price target for the next 12 months could be:
- Optimistic: ≈ $426.5 USD
- Neutral: ≈ $351.2 USD
- Negative: ≈ $283.4 USD
Finally, according to current P/S ration, a possible spread might be at:
- P/S 8: ≈ $244.97 USD
- P/S 15: ≈ $459.33 USD
The best analysis is yours!
M.F. J. Joel Padilla
Copyright: Joel Padilla 2023
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