Microsoft Corporation Valuation – November 2018 $MSFT

Company Profile (excerpt from Reuters): Microsoft Corporation, incorporated on September 22, 1993, is a technology company. The Company develops, licenses, and supports a range of software products, services and devices. The Company’s segments include Productivity and Business Processes, Intelligent Cloud and More Personal Computing. The Company’s products include operating systems; cross-device productivity applications; server applications; business solution applications; desktop and server management tools; software development tools; video games, and training and certification of computer system integrators and developers. It also designs, manufactures, and sells devices, including personal computers (PCs), tablets, gaming and entertainment consoles, phones, other intelligent devices, and related accessories, that integrate with its cloud-based offerings. It offers an array of services, including cloud-based solutions that provide customers with software, services, platforms, and content, and it provides solution support and consulting services. It also delivers online advertising to a global audience.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of MSFT – November 2018 $MSFT

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $786,398,728,564 1 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.92 1 Pass
3. Earnings Stability Positive EPS for 10 years prior 1 Pass
4. Dividend Record Dividend Payments for 10 years prior 1 Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 44.48% 1 Pass
6. Moderate PEmg Ratio PEmg < 20 32.62 0 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 9.24 0 Fail
Score 5
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.92 1 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.65 1 Pass
3. Earnings Stability Positive EPS for 5 years prior 1 Pass
4. Dividend Record Currently Pays Dividend 1 Pass
5. Earnings Growth EPSmg greater than 5 years ago 1 Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $3.13
MG Growth Estimate 6.80%
MG Value $69.29
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $45.45
MG Value based on 0% Growth $26.64
Market Implied Growth Rate 12.06%
Current Price $102.24
% of Intrinsic Value 147.55%

Microsoft Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $2.16 in 2015 to an estimated $3.13 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 12.06% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Microsoft Corporation revealed the company was trading above its Graham Number of $32.77. The company pays a dividend of $1.65 per share, for a yield of 1.6% Its PEmg (price over earnings per share – ModernGraham) was 32.62, which was below the industry average of 54.3, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-0.96.

Microsoft Corporation receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$0.96
Graham Number $32.77
PEmg 32.62
Current Ratio 2.92
PB Ratio 9.24
Current Dividend $1.65
Dividend Yield 1.61%
Number of Consecutive Years of Dividend Growth 17

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $164,195,000,000
Total Current Liabilities $56,277,000,000
Long-Term Debt $69,733,000,000
Total Assets $257,619,000,000
Intangible Assets $43,434,000,000
Total Liabilities $171,652,000,000
Shares Outstanding (Diluted Average) 7,766,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.43
Jun2018 $2.13
Jun2017 $3.25
Jun2016 $2.56
Jun2015 $1.48
Jun2014 $2.63
Jun2013 $2.58
Jun2012 $2.00
Jun2011 $2.69
Jun2010 $2.10
Jun2009 $1.62
Jun2008 $1.87
Jun2007 $1.42
Jun2006 $1.20
Jun2005 $1.12
Jun2004 $0.75
Jun2003 $0.69
Jun2002 $0.48
Jun2001 $0.66
Jun2000 $0.85
Jun1999 $0.71

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.13
Jun2018 $2.46
Jun2017 $2.58
Jun2016 $2.25
Jun2015 $2.16
Jun2014 $2.46
Jun2013 $2.32
Jun2012 $2.14
Jun2011 $2.12
Jun2010 $1.78
Jun2009 $1.56
Jun2008 $1.44
Jun2007 $1.16
Jun2006 $0.97
Jun2005 $0.82
Jun2004 $0.67
Jun2003 $0.65

Recommended Reading:

Other ModernGraham posts about the company

Microsoft Corp Valuation – February 2018 $MSFT
Microsoft Corporation Valuation – February 2017 $MSFT
Microsoft Corporation Valuation – August 2016 $MSFT
Microsoft Corp Valuation – February 2016 $MSFT
Microsoft Corporation Valuation – November 2015 Update $MSFT

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ACI Worldwide Inc Valuation – July 2018 $ACIW
Akamai Technologies Inc Valuation – May 2018 $AKAM
Symantec Corp Valuation – April 2018 $SYMC
Intuit Inc Valuation – April 2018 $INTU
CommVault Systems Inc Valuation – April 2018 $CVLT

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Microsoft Corp Valuation – February 2018 $MSFT

Company Profile (obtained from Marketwatch): Microsoft Corp. engages in the provision of developing and marketing software and hardware services. Its products include operating systems for computing devices, servers, phones and intelligent devices. It also offers server applications for distributed computing environments, productivity applications, business solution applications, desktop and server management tools, software development tools, video games, and online advertising. It operates through the following segments: Productivity and Business Processes; Intelligent Cloud; and More Personal Computing. The Productivity and Business Processes segment consists of products and cloud services in portfolio of productivity, communication, and information services. It comprises of office commercial, office consumer, and microsoft dynamics business solutions. The Intelligent Cloud segment offers hybrid server products and cloud services. It comprises of server products and cloud services and enterprise services. The More Personal Computing segment comprises of windows, devices, gaming, and search advertising. The company was founded by William Henry Gates III in 1975 and is headquartered in Redmond, WA.

MSFT Chart

MSFT data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of MSFT – February 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $742,638,698,133 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.89 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 0.94% Fail
6. Moderate PEmg Ratio PEmg < 20 45.47 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 9.25 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.89 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.67 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.07
MG Growth Estimate -2.40%
MG Value $7.64
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $30.00
MG Value based on 0% Growth $17.58
Market Implied Growth Rate 18.48%
Current Price $94.06
% of Intrinsic Value 1231.05%

Microsoft Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of earnings growth over the last five years. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $2.46 in 2014 to an estimated $2.07 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 18.48% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Microsoft Corporation revealed the company was trading above its Graham Number of $18.73. The company pays a dividend of $1.53 per share, for a yield of 1.6% Its PEmg (price over earnings per share – ModernGraham) was 45.47, which was above the industry average of 38.79. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-1.3.

Microsoft Corporation receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$1.30
Graham Number $18.73
PEmg 45.47
Current Ratio 2.89
PB Ratio 9.25
Current Dividend $1.53
Dividend Yield 1.63%
Number of Consecutive Years of Dividend Growth 15

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $167,633,000,000
Total Current Liabilities $58,099,000,000
Long-Term Debt $73,348,000,000
Total Assets $256,003,000,000
Intangible Assets $44,389,000,000
Total Liabilities $177,643,000,000
Shares Outstanding (Diluted Average) 7,710,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.66
Jun2017 $2.71
Jun2016 $2.10
Jun2015 $1.48
Jun2014 $2.63
Jun2013 $2.58
Jun2012 $2.00
Jun2011 $2.69
Jun2010 $2.10
Jun2009 $1.62
Jun2008 $1.87
Jun2007 $1.42
Jun2006 $1.20
Jun2005 $1.12
Jun2004 $0.75
Jun2003 $0.69
Jun2002 $0.48
Jun2001 $0.66
Jun2000 $0.85
Jun1999 $0.71
Jun1998 $0.42

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.07
Jun2017 $2.28
Jun2016 $2.10
Jun2015 $2.16
Jun2014 $2.46
Jun2013 $2.32
Jun2012 $2.14
Jun2011 $2.12
Jun2010 $1.78
Jun2009 $1.56
Jun2008 $1.44
Jun2007 $1.16
Jun2006 $0.97
Jun2005 $0.82
Jun2004 $0.67
Jun2003 $0.65
Jun2002 $0.63

Recommended Reading:

Other ModernGraham posts about the company

Microsoft Corporation Valuation – August 2016 $MSFT
Microsoft Corp Valuation – February 2016 $MSFT
Microsoft Corporation Valuation – November 2015 Update $MSFT
Microsoft Corporation Analysis – August 2015 Update $MSFT
47 Companies in the Spotlight This Week – 5/16/15

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Adobe Systems Inc Valuation – February 2017 $ADBE
Synopsys Inc Valuation – Initial Coverage $SNPS
Microsoft Corporation Valuation – February 2017 $MSFT
Cisco Systems Inc Valuation – January 2017 $CSCO
Autodesk Inc Valuation – December 2016 $ADSK

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Microsoft Corporation Valuation – February 2017 $MSFT

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – January 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Microsoft Corporation (MSFT) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Microsoft Corporation is a technology company. The Company develops, licenses, and supports a range of software products, services and devices. The Company’s segments include Productivity and Business Processes, Intelligent Cloud and More Personal Computing. The Company’s products include operating systems; cross-device productivity applications; server applications; business solution applications; desktop and server management tools; software development tools; video games, and training and certification of computer system integrators and developers. It also designs, manufactures, and sells devices, including personal computers (PCs), tablets, gaming and entertainment consoles, phones, other intelligent devices, and related accessories, that integrate with its cloud-based offerings. It offers an array of services, including cloud-based solutions that provide customers with software, services, platforms, and content, and it provides solution support and consulting services.

MSFT Chart

MSFT data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of MSFT – February 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $480,334,843,658 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.05 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 9.12% Fail
6. Moderate PEmg Ratio PEmg < 20 28.49 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 7.19 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.05 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.80 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

EPSmg $2.22
MG Growth Estimate -0.65%
MG Value $15.97
Opinion Overvalued
MG Grade C+
MG Value based on 3% Growth $32.17
MG Value based on 0% Growth $18.86
Market Implied Growth Rate 10.00%
Current Price $63.21
% of Intrinsic Value 395.81%

Microsoft Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of earnings growth over the last five years. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $2.32 in 2013 to an estimated $2.22 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 10% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Microsoft Corporation revealed the company was trading above its Graham Number of $22.47. The company pays a dividend of $1.47 per share, for a yield of 2.3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 28.49, which was below the industry average of 38.63, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-1.39.

Microsoft Corporation receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$1.39
Graham Number $22.47
PEmg 28.49
Current Ratio 2.05
PB Ratio 7.19
Current Dividend $1.47
Dividend Yield 2.33%
Number of Consecutive Years of Dividend Growth 15

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Total Current Assets $144,949,000,000
Total Current Liabilities $70,787,000,000
Long-Term Debt $59,306,000,000
Total Assets $224,610,000,000
Intangible Assets $45,525,000,000
Total Liabilities $155,801,000,000
Shares Outstanding (Diluted Average) 7,830,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.52
Jun2016 $2.10
Jun2015 $1.48
Jun2014 $2.63
Jun2013 $2.58
Jun2012 $2.00
Jun2011 $2.69
Jun2010 $2.10
Jun2009 $1.62
Jun2008 $1.87
Jun2007 $1.42
Jun2006 $1.20
Jun2005 $1.12
Jun2004 $0.75
Jun2003 $0.69
Jun2002 $0.48
Jun2001 $0.66
Jun2000 $0.85
Jun1999 $0.71
Jun1998 $0.42
Jun1997 $0.33

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.22
Jun2016 $2.10
Jun2015 $2.16
Jun2014 $2.46
Jun2013 $2.32
Jun2012 $2.14
Jun2011 $2.12
Jun2010 $1.78
Jun2009 $1.56
Jun2008 $1.44
Jun2007 $1.16
Jun2006 $0.97
Jun2005 $0.82
Jun2004 $0.67
Jun2003 $0.65
Jun2002 $0.63
Jun2001 $0.67

Recommended Reading:

Other ModernGraham posts about the company

Microsoft Corporation Valuation – August 2016 $MSFT
Microsoft Corp Valuation – February 2016 $MSFT
Microsoft Corporation Valuation – November 2015 Update $MSFT
Microsoft Corporation Analysis – August 2015 Update $MSFT
47 Companies in the Spotlight This Week – 5/16/15

Other ModernGraham posts about related companies

Cisco Systems Inc Valuation – January 2017 $CSCO
Autodesk Inc Valuation – December 2016 $ADSK
Symantec Corporation Valuation – August 2016 $SYMC
Adobe Systems Inc Valuation – August 2016 $ADBE
Microsoft Corporation Valuation – August 2016 $MSFT
Cisco Systems Inc Valuation – August 2016 $CSCO
Oracle Corporation Valuation – July 2016 $ORCL
CA Inc Valuation – July 2016 $CA
Red Hat Inc Valuation – June 2016 $RHT
Yahoo! Inc Valuation – June 2016 $YHOO

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Microsoft Corporation Valuation – August 2016 $MSFT

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – July 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Microsoft Corporation (MSFT) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Microsoft Corporation is a technology company. The Company develops, licenses and supports a range of software products, services and devices. Its segments are Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. Its products include operating systems; cross-device productivity applications; server applications; business solution applications; desktop and server management tools; software development tools; video games, and training and certification of computer system integrators and developers. It also designs, manufactures, and sells devices, including personal computers, tablets, gaming and entertainment consoles, phones, other intelligent devices, and related accessories, that integrate with its cloud-based offerings. It offers an array of services, including cloud-based solutions that provide customers with software, services, platforms, and content, and it provides solution support and consulting services. It also delivers online advertising.

chart (55)

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of MSFT – August 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $448,992,627,141 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.35 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 13.42% Fail
6. Moderate PEmg Ratio PEmg < 20 24.99 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 6.39 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.35 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.51 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

MSFT value chart August 2016

EPSmg $2.30
MG Growth Estimate -0.13%
MG Value $18.92
Opinion Overvalued
MG Grade C+
MG Value based on 3% Growth $33.33
MG Value based on 0% Growth $19.54
Market Implied Growth Rate 8.24%
Current Price $57.44
% of Intrinsic Value 303.53%

Microsoft Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of earnings growth over the last five years. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $2.32 in 2013 to an estimated $2.3 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 8.24% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Microsoft Corporation revealed the company was trading above its Graham Number of $23.93. The company pays a dividend of $1.39 per share, for a yield of 2.4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 24.99, which was below the industry average of 36.31, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $2.24.

Microsoft Corporation receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

MSFT charts August 2016

Net Current Asset Value (NCAV) $2.24
Graham Number $23.93
PEmg 24.99
Current Ratio 2.35
PB Ratio 6.39
Current Dividend $1.39
Dividend Yield 2.42%
Number of Consecutive Years of Dividend Growth 15

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2016
Total Current Assets $139,660,000,000
Total Current Liabilities $59,357,000,000
Long-Term Debt $40,783,000,000
Total Assets $193,694,000,000
Intangible Assets $21,605,000,000
Total Liabilities $121,697,000,000
Shares Outstanding (Diluted Average) 8,013,000,000

Earnings Per Share History

Next Fiscal Year Estimate $2.76
Jun2016 $2.10
Jun2015 $1.48
Jun2014 $2.63
Jun2013 $2.58
Jun2012 $2.00
Jun2011 $2.69
Jun2010 $2.10
Jun2009 $1.62
Jun2008 $1.87
Jun2007 $1.42
Jun2006 $1.20
Jun2005 $1.12
Jun2004 $0.75
Jun2003 $0.69
Jun2002 $0.48
Jun2001 $0.66
Jun2000 $0.85
Jun1999 $0.71
Jun1998 $0.42
Jun1997 $0.33

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.30
Jun2016 $2.10
Jun2015 $2.16
Jun2014 $2.46
Jun2013 $2.32
Jun2012 $2.14
Jun2011 $2.12
Jun2010 $1.78
Jun2009 $1.56
Jun2008 $1.44
Jun2007 $1.16
Jun2006 $0.97
Jun2005 $0.82
Jun2004 $0.67
Jun2003 $0.65
Jun2002 $0.63
Jun2001 $0.67

Recommended Reading:

Other ModernGraham posts about the company

Microsoft Corp Valuation – February 2016 $MSFT
Microsoft Corporation Valuation – November 2015 Update $MSFT
Microsoft Corp Valuation – February 2016 $MSFT
Microsoft Corporation Valuation – November 2015 Update $MSFT
Microsoft Corporation Analysis – August 2015 Update $MSFT

Other ModernGraham posts about related companies

Cisco Systems Inc Valuation – August 2016 $CSCO
Oracle Corporation Valuation – July 2016 $ORCL
CA Inc Valuation – July 2016 $CA
Red Hat Inc Valuation – June 2016 $RHT
Yahoo! Inc Valuation – June 2016 $YHOO
Alphabet Inc Valuation – June 2016 $GOOGL
Ansys Inc Valuation – June 2016 $ANSS
Citrix Systems Inc Valuation – May 2016 $CTXS
Symantec Corp Valuation – February 2016 $SYMC
Microsoft Corp Valuation – February 2016 $MSFT

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Microsoft Corp Valuation – February 2016 $MSFT

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – February 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Microsoft Corp (MSFT) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Microsoft Corporation is engaged in developing, licensing and supporting a range of software products and services. The Company also designs and sells hardware, and delivers online advertising to the customers. The Company operates in five segments: Devices and Consumer (D&C) Licensing, D&C Hardware, D&C Other, Commercial Licensing, and Commercial Other. The Company’s products include operating systems for computing devices, servers, phones, and other intelligent devices; server applications for distributed computing environments; productivity applications; business solution applications; desktop and server management tools; software development tools; video games; and online advertising. It also offers cloud-based solutions that provide customers with software, services and content over the Internet by way of shared computing resources located in centralized data centers. It provides consulting and product and solution support services.

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ModernGraham Valuation of MSFT

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $376,970,363,163 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.00 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 31.77% Fail
6. Moderate PEmg Ratio PEmg < 20 22.62 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.17 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 3.00 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.48 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

MSFT value chart February 2016

EPSmg $2.18
MG Growth Estimate 0.28%
MG Value $19.79
Opinion Overvalued
MG Value based on 3% Growth $31.68
MG Value based on 0% Growth $18.57
Market Implied Growth Rate 7.06%
Current Price $49.41
% of Intrinsic Value 249.65%

Microsoft Corp does not qualify for either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings growth of the last ten years as well as the high PEmg and PB ratios.  The Enterprising Investor has no initial concerns.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $2.14 in 2012 to an estimated $2.18 for 2016.  This level of earnings growth does not support the market’s implied estimate of 7.06% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

Stage 3: Information for Further Research

MSFT charts February 2016

Net Current Asset Value (NCAV) $3.05
Graham Number $22.68
PEmg 22.62
Current Ratio 3.00
PB Ratio 5.17
Dividend Yield 2.61%
Number of Consecutive Years of Dividend Growth 14

 

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Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information Dec2015
Total Current Assets $127,812,000,000
Total Current Liabilities $42,643,000,000
Long-Term Debt $40,679,000,000
Total Assets $180,098,000,000
Intangible Assets $22,055,000,000
Total Liabilities $103,318,000,000
Shares Outstanding (Diluted Average) 8,028,000,000

Earnings Per Share History

Next Fiscal Year Estimate $2.36
Jun2015 $1.48
Jun2014 $2.63
Jun2013 $2.58
Jun2012 $2.00
Jun2011 $2.69
Jun2010 $2.10
Jun2009 $1.62
Jun2008 $1.87
Jun2007 $1.42
Jun2006 $1.20
Jun2005 $1.12
Jun2004 $0.75
Jun2003 $0.69
Jun2002 $0.48
Jun2001 $0.66
Jun2000 $0.85
Jun1999 $0.71
Jun1998 $0.42
Jun1997 $0.33
Jun1996 $0.22

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.18
Jun2015 $2.16
Jun2014 $2.46
Jun2013 $2.32
Jun2012 $2.14
Jun2011 $2.12
Jun2010 $1.78
Jun2009 $1.56
Jun2008 $1.44
Jun2007 $1.16
Jun2006 $0.97
Jun2005 $0.82
Jun2004 $0.67
Jun2003 $0.65
Jun2002 $0.63
Jun2001 $0.67
Jun2000 $0.62

Recommended Reading:

Other ModernGraham posts about the company

Microsoft Corporation Valuation – November 2015 Update $MSFT
Microsoft Corporation Analysis – August 2015 Update $MSFT
47 Companies in the Spotlight This Week – 5/16/15
Microsoft Corporation Quarterly Valuation – May 2015 $MSFT
27 Companies in the Spotlight This Week – 2/14/15

Other ModernGraham posts about related companies

Cisco Systems Inc Valuation – February 2016 $CSCO
CA Inc Valuation – January 2016 Update $CA
Intuit Inc Valuation – January 2016 Update $INTU
Oracle Corporation Valuation – January 2016 Update $ORCL
Ansys Inc. Valuation – November 2015 Update $ANSS
Yahoo! Inc. Valuation – November 2015 Update $YHOO
Microsoft Corporation Valuation – November 2015 Update $MSFT
Cisco Systems Inc. Valuation – November 2015 Update $CSCO
Alphabet Inc. Valuation – October 2015 Update $GOOG $GOOGL
Intuit Inc. Analysis – October 2015 Update $INTU

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Microsoft Corporation Valuation – November 2015 Update $MSFT

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – October 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Microsoft Corporation (MSFT) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Microsoft Corporation is engaged in developing, licensing and supporting a range of software products and services. The Company also designs and sells hardware, and delivers online advertising to the customers. The Company operates in five segments: Devices and Consumer (D&C) Licensing, D&C Hardware, D&C Other, Commercial Licensing, and Commercial Other. The Company’s products include operating systems for computing devices, servers, phones, and other intelligent devices; server applications for distributed computing environments; productivity applications; business solution applications; desktop and server management tools; software development tools; video games; and online advertising. It also offers cloud-based solutions that provide customers with software, services and content over the Internet by way of shared computing resources located in centralized data centers. It provides consulting and product and solution support services.

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To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of MSFT – November 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $432,808,867,601 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.46 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 34.42% Pass
6. Moderate PEmg Ratio PEmg < 20 24.26 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.63 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.46 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.39 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

MSFT value Chart November 2015

EPSmg $2.23
MG Growth Estimate 0.58%
MG Value $21.54
Opinion Overvalued
MG Value based on 3% Growth $32.31
MG Value based on 0% Growth $18.94
Market Implied Growth Rate 7.88%
Current Price $54.05
% of Intrinsic Value 250.99%

Microsoft Corporation qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned by the high PEmg and PB ratios, while the Enterprising Investor has no initial concerns.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $2.12 in 2011 to an estimated $2.23 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 7.88% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Microsoft Corporation (MSFT)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

MSFT Charts November 2015

Net Current Asset Value (NCAV) $3.25
Graham Number $23.31
PEmg 24.29
Current Ratio 2.46
PB Ratio 5.64
Dividend Yield 2.29%
Number of Consecutive Years of Dividend Growth 14

 

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Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Total Current Assets $121,656,000,000
Total Current Liabilities $49,399,000,000
Long-Term Debt $27,819,000,000
Total Assets $172,896,000,000
Intangible Assets $21,887,000,000
Total Liabilities $95,451,000,000
Shares Outstanding (Diluted Average) 8,066,000,000

Earnings Per Share History

Next Fiscal Year Estimate $2.49
Jun15 $1.48
Jun14 $2.63
Jun13 $2.58
Jun12 $2.00
Jun11 $2.69
Jun10 $2.10
Jun09 $1.62
Jun08 $1.87
Jun07 $1.42
Jun06 $1.20
Jun05 $1.12
Jun04 $0.75
Jun03 $0.69
Jun02 $0.48
Jun01 $0.66
Jun00 $0.85
Jun99 $0.71
Jun98 $0.42
Jun97 $0.33
Jun96 $0.22

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.23
Jun15 $2.16
Jun14 $2.46
Jun13 $2.32
Jun12 $2.14
Jun11 $2.12
Jun10 $1.78
Jun09 $1.56
Jun08 $1.44
Jun07 $1.16
Jun06 $0.97
Jun05 $0.82
Jun04 $0.67
Jun03 $0.65
Jun02 $0.63
Jun01 $0.67
Jun00 $0.62

Recommended Reading:

Other ModernGraham posts about the company

Microsoft Corporation Analysis – August 2015 Update $MSFT
47 Companies in the Spotlight This Week – 5/16/15
Microsoft Corporation Quarterly Valuation – May 2015 $MSFT
27 Companies in the Spotlight This Week – 2/14/15
Microsoft Corporation Quarterly Valuation – February 2015 $MSFT

Other ModernGraham posts about related companies

Cisco Systems Inc. Valuation – November 2015 Update $CSCO
Alphabet Inc. Valuation – October 2015 Update $GOOG $GOOGL
Intuit Inc. Analysis – October 2015 Update $INTU
Oracle Corporation Analysis – October 2015 Update $ORCL
CA Inc. Analysis – August 2015 Update $CA
The Best Companies of the Software Industry – August 2015
Ansys Inc. Analysis – Initial Coverage $ANSS
Yahoo! Inc. Analysis – August 2015 Update $YHOO
Autodesk Inc. Analysis – August 2015 Update $ADSK
Microsoft Corporation Analysis – August 2015 Update $MSFT

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Microsoft Corporation Analysis – August 2015 Update $MSFT

Microsoft_logo_and_wordmark.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – July 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Microsoft Corporation (MSFT) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Microsoft Corporation is engaged in developing, licensing and supporting a range of software products and services. The Company also designs and sells hardware, and delivers online advertising to the customers. The Company operates in five segments: Devices and Consumer (D&C) Licensing, D&C Hardware, D&C Other, Commercial Licensing, and Commercial Other. The Company’s products include operating systems for computing devices, servers, phones, and other intelligent devices; server applications for distributed computing environments; productivity applications; business solution applications; desktop and server management tools; software development tools; video games; and online advertising. It also offers cloud-based solutions that provide customers with software, services and content over the Internet by way of shared computing resources located in centralized data centers. It provides consulting and product and solution support services.

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To read the rest of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.
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Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $46.40
MG Value $19.31
MG Opinion Overvalued
Value Based on 3% Growth $31.27
Value Based on 0% Growth $18.33
Market Implied Growth Rate 6.51%
NCAV $3.51
PEmg 21.51
Current Ratio 2.50
PB Ratio 4.71

Balance Sheet – June 2015

Current Assets $124,712,000,000
Current Liabilities $49,858,000,000
Total Debt $27,808,000,000
Total Assets $176,223,000,000
Intangible Assets $21,774,000,000
Total Liabilities $96,140,000,000
Outstanding Shares 8,137,000,000

Earnings Per Share

2015 $1.48
2014 $2.63
2013 $2.58
2012 $2.00
2011 $2.69
2010 $2.10
2009 $1.62
2008 $1.87
2007 $1.42
2006 $1.20
2005 $1.12

Earnings Per Share – ModernGraham

2015 $2.16
2014 $2.46
2013 $2.32
2012 $2.14
2011 $2.12
2010 $1.78

Dividend History

Free Cash Flow

Conclusion:

Microsoft Corporation qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the high PEmg and PB ratios.  The Enterprising Investor has no initial concerns.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the evaluation.  As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $2.12 in 2011 to only $2.16 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 6.51% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Microsoft Corporation (MSFT)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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Microsoft Corporation Quarterly Valuation – May 2015 $MSFT

Microsoft_logo_and_wordmark.svgMicrosoft Corporation (NASDAQ:MSFT) may attract some potential investors, as the company is so well known for its products. Benjamin Graham, the father of value investing, taught that the most important aspect to consider is whether a company is trading at a discount relative to its intrinsic value. It is through a thorough fundamental analysis that the investor is able to make a determination about a potential investment’s merits. Here is a look at how the company fares in the ModernGraham valuation model.

The model is inspired by the teachings of Benjamin Graham, and considers numerous metrics intended to help the investor reduce risk levels. The first part of the analysis is to determine whether the company is suitable for the very conservative Defensive Investor or the less conservative Enterprising Investor, who is willing to spend a greater amount of time conducting further research.

In addition, Graham strongly suggested that investors avoid speculation, in order to remove the subjective elements of emotion. This is best achieved by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another. By using theModernGraham method, one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.

MSFT Chart

MSFT data by YCharts

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Defensive Investor – Must pass at least 6 of the following 7 tests: Score = 6/7

  1. Adequate Size of Enterprise – Market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – Current ratio greater than 2 – PASS
  3. Earnings Stability – Positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – Has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – Earnings per share has increased by at least 1/3rd over the last 10 years, using 3-year averages at the beginning and end of the period – PASS
  6. Moderate PEmg (price over normalized earnings) Ratio – PEmg is less than 20 – PASS
  7. Moderate Price-to-Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – Must pass at least 4 of the following 5 tests or be suitable for a Defensive Investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – Current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt-to-Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – Positive earnings per share for at least 5 years – PASS
  4. Dividend Record – Currently pays a dividend – PASS
  5. Earnings Growth – EPSmg greater than that 5 years ago – PASS

Valuation Summary

Key Data

Recent Price $48.24
MG Value $32.40
MG Opinion Overvalued
Value Based on 3% Growth $35.62
Value Based on 0% Growth $20.88
Market Implied Growth Rate 5.57%
NCAV $3.87
PEmg 19.64
Current Ratio 2.91
PB Ratio 4.41

Balance Sheet – March 2015

Current Assets $118,398,000,000
Current Liabilities $40,748,000,000
Total Debt $27,644,000,000
Total Assets $176,683,000,000
Intangible Assets $28,691,000,000
Total Liabilities $86,551,000,000
Outstanding Shares 8,237,000,000

Earnings Per Share

2015 (estimate) $2.38
2014 $2.63
2013 $2.58
2012 $2.00
2011 $2.69
2010 $2.10
2009 $1.62
2008 $1.87
2007 $1.42
2006 $1.20
2005 $1.12

Earnings Per Share – ModernGraham

2015 (estimate) $2.46
2014 $2.46
2013 $2.32
2012 $2.14
2011 $2.12
2010 $1.78

Dividend History

MSFT Dividend Chart

MSFT Dividend data by YCharts

Conclusion

Microsoft Corporation passes the initial requirements of both the Defensive Investor and the Enterprising Investor. The Defensive Investor’s only initial concern is the high PB ratio, and the Enterprising Investor has no initial concerns. As a result, all value investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to that valuation, it is critical to consider the company’s earnings history. In this case, Microsoft has seen its EPSmg (normalized earnings) rise from $2.12 in 2011 to only an estimated $2.46 for 2015. This is not a very high level of earnings growth, and does not support the market’s implied estimate for 5.57% annual growth over the next 7-10 years. The ModernGraham valuation model returns an estimate of intrinsic value falling below the current price, indicating that Microsoft is overvalued at the present time.

Disclaimer: The author did not hold a position in any of the companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours. Logos taken from either the company website or Wikipedia; this article is not affiliated with the companies in any manner.

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Microsoft Corporation Quarterly Valuation – February 2015 $MSFT

Microsoft_logo_and_wordmark.svg

Microsoft passes the initial requirements of both the Defensive Investor and the Enterprising Investor. The only issue the Defensive Investor has with the company is the high PB ratio, while the Enterprising Investor has no initial concerns. As a result, all value investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to that valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $2.12 in 2011 to $2.40 for 2015. This is a strong level of demonstrated growth but it is below the market’s implied estimate for earnings growth of 4.64% over the next 7-10 years. In fact, the historical growth is around 2.56% per year, so the market is expecting a very significant drop in earnings growth. The ModernGraham valuation model returns an estimate of intrinsic value falling below the current price, indicating the company is overvalued at the present time.

Be sure to check out previous ModernGraham valuations of Microsoft Corporation (MSFT) for greater perspective!

Read the full valuation on Seeking Alpha!

MSFT Chart

MSFT data by YCharts

Disclaimer:  The author did not hold a position in Microsoft Corporation (MSFT) at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

Microsoft Corporation Quarterly Valuation – November 2014 $MSFT

Microsoft_logo_and_wordmark.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Highest Dividend Yields Among Undervalued Companies for the Defensive Investor – October 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Microsoft Corporation (MSFT) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Microsoft Corporation is engaged in developing, licensing and supporting a range of software products and services. The Company also designs and sells hardware, and delivers online advertising to the customers. The Company operates in five segments: Windows & Windows Live Division (Windows Division), Server and Tools, Online Services Division (OSD), Microsoft Business Division (MBD), and Entertainment and Devices Division (EDD). The Company’s products include operating systems for personal computers (PCs), servers, phones, and other intelligent devices; server applications for distributed computing environments; productivity applications; business solution applications; desktop and server management tools; software development tools; video games, and online advertising. Effective July 11, 2014, Microsoft Corp acquired InMage Systems Inc.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 6/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $47.50
MG Value $33.85
MG Opinion Overvalued
Value Based on 3% Growth $36.06
Value Based on 0% Growth $21.14
Market Implied Growth Rate 5.30%
NCAV $3.95
PEmg 19.10
Current Ratio 2.52
PB Ratio 4.40

Balance Sheet – September 2014

Current Assets $112,439,000,000
Current Liabilities $44,694,000,000
Total Debt $18,472,000,000
Total Assets $169,656,000,000
Intangible Assets $26,774,000,000
Total Liabilities $79,486,000,000
Outstanding Shares 8,351,000,000

Earnings Per Share

2015 (estimate) $2.47
2014 $2.63
2013 $2.58
2012 $2.00
2011 $2.69
2010 $2.10
2009 $1.62
2008 $1.87
2007 $1.42
2006 $1.20
2005 $1.12

Earnings Per Share – ModernGraham

2015 (estimate) $2.49
2014 $2.46
2013 $2.32
2012 $2.14
2011 $2.12
2010 $1.78

Dividend History

Conclusion:

Microsoft Corporation qualifies for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor’s only concern is the high PB ratio while the Enterprising Investor has no initial concerns.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities.  As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $2.12 in 2011 to only an estimated $2.49 for 2015.  This level of demonstrated growth does not support the market’s implied estimate of 5.3% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.

Be sure to check out previous ModernGraham valuations of Microsoft Corporation (MSFT) for a better perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Microsoft Corporation (MSFT)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Microsoft Corporation (MSFT) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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