MSFT

Best Idea Intel Continues to Deliver Solid Results and Return Cash to Shareholders

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Best Idea Intel () reported another strong quarter Tuesday. Some of the financial highlights include a strong gross margin of 64% (65.1% non-GAAP), earnings per share of $0.53 (versus consensus expectations of $0.50 per share), and $3 billion in cash flow generated from operations. Additionally, during its first quarter, the company bought back $1.5 billion in stock and paid out $1 billion in dividends. Management still has the authorization for an additional $8.6 billion in share buybacks (which are value-creating at these price levels), and we think the company’s excellent dividend payout (0.84 per share; 3% annual yield) could increase meaningfully in coming years. Our fair value estimate remains unchanged. Though revenue only advanced modestly on a year-over-year basis thanks to inventory … Read more

Will Microsoft’s Mobile Strategy Lead to its Revival?

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A ten-year chart of Microsoft (MSFT) is not a pretty site. Excluding dividends, shares are down a little over 10%, and the PE has contracted from above 40 to, at times, below 10. In the same time period, Microsoft has gone from a Wall Street tech darling that dominated computing to a dinosaur, legacy tech-company. Regardless of how accurate such a description may be, investors have in droves fled to Apple (AAPL), which makes innovative consumer devices that have impressed the masses. During this same time period, Microsoft has had a few wins, including Windows 7, continued excellence with its Office products, Xbox, and Kinect. Throughout the same period we’ve also seen the Zune, unsuccessful tablets, a weak mobile strategy, … Read more

Microsoft Posts Fiscal Second-Quarter Results; Shares Remain Cheap

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Microsoft (MSFT), one of the larger holdings in the portfolio of our Dividend Growth Newsletter, reported solid fiscal second-quarter results Thursday on the heels of strong corporate demand and holiday sales. We continue to be pleased with Microsoft’s performance and maintain our view that the shares continue to have valuation upside potential. The firm’s revenue advanced 5% from the prior-year period thanks primarily to expansion in its Server/Tools and Entertainment/Devices segments, which advanced 11% and 14.5%, respectively. The Business Division, its largest segment, increased 3% from the prior-year period, and the firm noted that it has sold nearly 200 million licenses of Office 2010 (in the 18 months since launch). Revenue in the firm’s Windows division fell 6%, and management … Read more

Red Hat Reports Fiscal Third-Quarter Results; Best Billings Growth in Years

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Linux software maker Red Hat (RHT) reported strong fiscal third-quarter results that showed excellent growth across the board, but the company’s deferred revenue growth and revenue outlook failed to impress some of the most bullish investors. Sales advanced 23% from last year’s quarter led by subscription revenue, while non-GAAP operating income and non-GAAP EPS increased 36% and 40%, respectively, from the same period a year ago. Non-GAAP EPS came in at $0.28 per share in the quarter (topping consensus estimates of $0.26), thanks to non-GAAP operating margin improvement of 260 basis points. Third-quarter operating cash flow also had a nice showing in the period, up an impressive 36%. Deferred revenue, however, advanced 20% from last year’s quarter, signaling the potential … Read more

Microsoft Reports Fiscal First Quarter; Slows Bleeding at Bing; Office and “Cloud” Remain Strong

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On Thursday, Microsoft (MSFT) reported in-line fiscal first-quarter results. We are maintaining our mid-$30s fair value estimate and think the firm would be a nice addition to our Best Ideas portfolio upon technical improvement. We’re also not hurting for additional technology exposure, as we already hold eBay (EBAY), Intel (INTC), and Apple (AAPL). The software giant’s revenue advanced 7% in its fiscal first quarter, while net income and diluted earnings per share jumped 6% and 10%, respectively (the bottom line number met consensus, but disappointed some). All major reporting segments—Windows, Server and Tools, Online Services, Microsoft Business, Entertainment and Devices—experienced top-line expansion,  though only its Server and Tools (read “cloud”), Microsoft Business (“Office”), and Online Services divisions (“Bing”) showed improvement in … Read more

Ignore Debt Ceiling News, Focus on Corporate Earnings

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Simply put, the United States is not going to default on its debt. In other words, we think any market action resulting from the debt-ceiling issue will be irrelevant in coming months, and resolve itself in due time — as it has with any other crisis. Further, we remain unconvinced that this topic is a legitimate concern for long-term equity investors. The fact that America has a large national debt (and a problem with entitlement programs) is well documented in every history and social-studies textbook in grammar schools across the country; how can this be something that will blindside the markets? We’re not talking about derivatives on complex mortgage instruments here. The debt-ceiling deadline is purely a political issue, one … Read more

Microsoft Posts Strong Fourth-Quarter Results, Online Business Still Drag

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Microsoft (MSFT) reported decent fiscal fourth-quarter results Thursday that showed strong sales of its Server and Tools products, Microsoft Office 2010, and its Xbox 360 entertainment platform. Revenue advanced 8% from the same period a year ago, while net income jumped 30% thanks in part to a lower tax rate. Overall, we were pleased with the quarter, despite the ongoing earnings weakness at its online business and declining growth at Windows, and we are maintaining our $35 fair value estimate of Microsoft’s shares. The firm’s Business Division had a strong showing, with quarterly revenue up 7% during the period, and the firm indicated that Office 2010 continues to be the fastest selling version of Office in history. The firm’s Server & … Read more

A Deep Look Into Microsoft’s Valuation

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This article appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/279186-a-deep-look-into-microsofts-valuation As part of our process, we employ a discounted cash-flow model to arrive at a fair value estimate for every company within our equity coverage universe. In Microsoft’s (MSFT) case, using a discounted cash-flow model is the best tool for valuation, given the firm’s robust cash-flow characteristics. We outline below our forecasts and fair value estimate for Microsoft and offer up our model template to investors if they are interested in using it to value any operating (non-financial) company they wish. This model template can be found at DCF Valuation Model Template. Valuation Summary We think Microsoft’s shares are worth $35 each. We’re forecasting revenue expansion in the low-double-digits for fiscal 2011 … Read more

How to Think About Corporate Tax Reform

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8 Announcements and Top Research You May Have Missed

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8 Announcements. This article was sent to members via email March 27. By Brian Nelson, CFA Hi everyone, Brian here. Trust you are doing great! Here are eight announcements I want you to be aware of: Everything we do is for our members. We’re very proud of the outperformance of the Best Ideas Newsletter portfolio, that we’ve never had a dividend cut in the Dividend Growth Newsletter portfolio, that our high-yield ideas are holding up very well, and the success rates of the Exclusive capital-appreciation ideas and short-idea considerations are running at approximately 80%. We’re proud to be your research partner. The odds of a Fed rate cut are going up as yield-curve inversion continues to threaten. The risks are more behavioral in … Read more