I am bullish on Microsoft (NASDAQ:) as its strong growth rate, considerable competitive advantages, and bullish Wall Street consensus complement its reasonable valuation.

Microsoft, an American multinational corporation, produces computer electronics and software. (See MSFT stock charts on TipRanks)

Strengths

Microsoft is considered one of the Big Five information technology sector players in the United States, along with Apple (NASDAQ:), Amazon (NASDAQ:), Google (NASDAQ:), and Facebook (NASDAQ:). Microsoft Surface, its flagship product, is available alongside its Xbox consoles and other touchscreen computers.

It was one of many beneficiaries for businesses who switched to cloud computing services in the wake of the coronavirus epidemic. Azure, Microsoft’s cloud computing software, successfully captured a 20% share of the $150-billion global cloud market by the end of the first quarter, ended September 2020, and it continues to see further growth.

Azure has also been ranked second in global market share to Amazon Web Services.

Recent Results

Microsoft announced revenue of $46.2 billion, showing a growth of 25% year-over-year in its fourth fiscal quarter of 2021. Microsoft also announced a net profit of $16.5 million, up 47% over last year and earnings per share at $2.17. This is an increase of 49% from the previous year.

Microsoft’s Commercial Cloud revenue grew 36% on a year-over-year basis to $19.5 billion. Azure’s revenue growth was reported at 51%, beating the overall Intelligent Cloud segment’s 30% growth. According to the company, the increase was due in cloud service adoption triggered by COVID-19.

Microsoft reported a 33% rise in revenues in Dynamic Products and Services, with Dynamic 365 growing by 49%. The company’s LinkedIn revenue increased by 46%, and Office Commercial revenue increased by 25%.

The company also had some weaknesses, including a modest 18% increase in revenue from the Officer Consumer segment, a 20% decrease in Surface revenue, and a 3% drop in Windows OEM revenue.

For Fiscal Year 2021 the company generated $168.1billion in revenues, an increase of 18% year over year. Additionally, net income was $61.3billion, earnings per shares were $8.05 and operating income of $69.9billion.

The company achieved great success despite some disappointments.

Valuation Metrics

Microsoft stock looks quite reasonably priced, despite its strong recent results. The price-to forward normalized earnings ratio is only 34x. Its forward price-to free cash flow ratio is 37.2x. These are both very appealing given the company’s strong growth and competitive advantage.

Normalized earnings per share and revenue are projected to increase by double digits between 2022-2023.

Wall Street’s Take

From Wall Street analysts, Microsoft earns a Strong Buy analyst consensus, based on 22 unanimous Buy ratings assigned in the past three months. With an average MSFT price target at $336.19, the upside potential is 14.4%.

Summary and Conclusions

Microsoft is a fantastic company that attracts some of the best and brightest minds in technology.

Microsoft continues to innovate to remain market leader in each of its business segments and generates strong growth and profit.

Its share price is still very reasonable.

Disclosure: Samuel Smith didn’t hold any positions in the securities discussed in this article at the time it was published.

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