Microsoft Corporation (NASDAQ:MSFT) once again appears to be a forgotten success story, overlooked amid the recent dominant performances by the likes of Amazon.com, Inc.(NASDAQ:AMZN), Tesla Inc (NASDAQ:TSLA) and Apple Inc. (NASDAQ:AAPL), which are all trading near all-time highs.
But investors who are looking for a potential breakout candidate, offering the combination of revenue growth and solid dividend, should look no further than Microsoft.
Although MSFT stock, which closed Friday at $65.68, is not cheap, Microsoft can rally another 15% in the next 12 to 18 months, reaching $76 to $80 per share. And this rally can start as early this later this month, when the Redmond, Wash.-based tech giant reports third quarter fiscal 2017 earnings.
Microsoft Stock by the Numbers
For the quarter that ended in March, MSFT is expected to deliver earnings per share of 70 cents on revenue of $23.62 billion, translating to year-over-year growth of 12.9% and 7%, respectively.
For the full year, ending June, earnings are projected to rise 6.4% year over year to $2.97 per share, while revenue of $96.59 billion would mark a year-over-year increase of $4.9%.
MSFT has risen 5.4% year to date, which trails, say, the 20%-plus gain Amazon has put up. This also compares to a 5% rise in the S&P 500 index.
But thanks to Microsoft’s quick emergence in the cloud, which is also generating higher profit margins, Microsoft stock is poised to catch lightning. Worldwide spending on cloud computing services is expected to grow to $195 billion by 2020, according to technology market research firm IDC.
Microsoft’s Azure cloud platform, which is now second only to Amazon’s Amazon Web Services, is gaining greater adoption among Fortune-500 companies and is proven to be a growing threat in the space. Azure revenue surged a whopping 93% in the second quarter, compared to the year-ago period, while overall cloud applications and software grew 8%.
Just as important, Microsoft’s cloud strength, combined with advances in mobile applications, reduces its dependence on declining PC sales.
Notably, second-quarter gross margins in its Commercial cloud business, which includes Azure and Office 365 product sold to businesses, reached 48% — up two percentage points year over year. This improved profit margin is an important metric analysts pay close attention to. And with LinkedIn now in the fold, Microsoft stock has yet another strong asset to push its cloud ambition even farther.
Bottom Line for MSFT Stock
MSFT won’t impress with breathtaking returns in the near term, but much of that has to do with Microsoft stock’s massive size and scale, given its market cap is well over $500 billion. But with some $121 billion in cash on the balance sheet, the company is both a safe haven from the standpoint of the 2.4% yield and with its cloud prowess offering sustainable growth opportunities.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
