Microsoft Corporation

MSFT Details

Microsoft Enhances Digital Skills: Microsoft Corporation (NASDAQ: MSFT) deals in various technological solutions which is being used in both hardware and software. On March 30, 2021, the company informed the market that it has helped more than 30 million people in approximately 249 countries and regions to advance access to digital skill. The move fortifies the company’s goal to top its initial target of 25 million and expects to add a further 250,000 companies in FY21 to make a skills-based hire.

MSFT Invests in Data Innovation Centre: On March 24, 2021, the company stated that it is investing in creating the latest Data Innovation Centre of Excellence in Canada to assist local businesses in digital transformation as companies bounce back from the pandemic outbreak. The Data Innovation Centre will be opened at the company’s latest downtown Toronto headquarters. The company will also add an Azure Edge Zone in Western Canada, which fortifies its cloud presence in the country.

Q2FY21 Key Highlights:  During the quarter, the company reported top-line growth of ~17% on year-on-year basis, owing to better- revenue growth in Intelligent Cloud business segment. With better revenue growth and lower operating expenses, the company posted revenue with most of the operating income of $17.9 billion, up 29% on pcp. Net income for the quarter came in at $15.5 million, up 33% on a year over year basis.

Key Financial Metrics (Source: Company Reports)

Key Risks: The company needs to watch out for rising competition in the cloud space. The ongoing macroeconomic and trade worries due to the COVID-led outbreak might also have a denting effect on the company’s financial performance.

What to Expect: The company is expected to post better growth in the top line with the growing demand for Intelligent cloud business in the coming quarter. For 3QFY21, the company expects 2 points to increase revenue with most of the growth from intelligent cloud business. For 3QFY21, Productivity and Business Processes revenues are expected in the ambit of $13.35 billion and $13.6 billion.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: Over the last three months, the stock went up by ~16.49%. The stock made a 52-week low and high of $162.30 and $255.99, respectively. On the technical analysis front, the stock has a support level of ~$241.15 and a resistance level of ~$256.30. We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price of an upside of high single-digit (in percentage terms). We believe that the company can trade at a slight premium as compared to its peer’s average, considering the higher demand for its cloud-based solution, decent top line-growth, and promising outlook. We have taken peers like Oracle Corporation (NYSE: ORCL), Adobe Inc. (NASDAQ: ADBE), to name a few.  Considering the company’s decent 2QFY21 performance, geographical expansion, decent outlook, growth in Intelligent Cloud business segment and current trading levels, we give a “Hold” recommendation on the stock at the closing price of $255.85, up by 1.03% on 9 April 2021. 

MSFT Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Salesforce.com Inc

CRM Details

CRM Unveils Sales Cloud 360: Salesforce.com Inc (NYSE: CRM) is a worldwide leader in CRM (customer relationship management) technology that enables companies to boost their relationships and interaction with customers. On March 24, 2021, the company announced that it has unveiled Sales Cloud 360 to better boost virtual sales performances. This new technology can be utilized by companies to transform business and improve their sales and productivity digitally.

Other Recent Updates: On March 18, 2021, the company informed the market that over 150 international, state, federal, & local government agencies, as well as healthcare organizations are utilizing Salesforce technology for vaccine management and tracking COVID-19 virus. 

Q4FY21 Key Highlights: During the quarter, the company reported revenues of $5.82 billion, up 20% year over, owing to a robust demand environment as customers are experiencing a major digital transformation. Also, strong adoption of CRM’s cloud-based solutions aided the results. Non-GAAP EPS for the quarter stood at $1.04 per share, up by a whopping 58% year over year. Gross profit in 4QFY21 came in at $4.34 billion, up ~19.5% on a year over year basis. The company exited the period with cash and marketable securities worth $12 billion. Operating cash inflow for the quarter stood at $2.17 billion.

Financial Summary (Source: Company Reports)

CRM to Buy Slack: On 1 December 2020, CRM was eyeing to buy the enterprise communications platform and software maker, Slack Technologies, Inc (NYSE: WORK). As per the deal, CRM will pay Slack Technologies $26.79 in cash and 0.0776 shares of Salesforce common stock for every Slack share. Post the completion of the transaction, it is expected to be the largest acquisition deal for CRM after Tableau. The buyout is in-line with CRM’s strategies to grab robust opportunities from the digital transformation plans undertaken by organizations. Also, the acquisition will aid the company to better compete with its competitors, with an aim of enhancing the alliance between sales and customer support teams.

Risk Analysis: On the flip side, the company is exposed to tariff risks and adverse currency rates risks. The negative movements in foreign currency might impact its financial performance. Furthermore, the company is battling with higher inventory levels, bad debt provisions for COVID-19, and incremental costs.

Outlook for FY22: The company updated its FY22 revenue guidance to be between $25.65-$25.75 billion as compared to the prior view of $25.45-$25.55 billion. Non-GAAP EPS is expected between $3.39-$3.41, whereas non-GAAP operating margin is likely to be ~17.7% in FY22.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: Over the last three months, the stock went up by ~5.97%. The stock made a 52-week low and high of $148 and $284.5, respectively. On the technical analysis front, the stock has a support level of ~$219.92 and a resistance level of ~$246.45. We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price of an upside of low double-digit (in percentage terms). We believe that the company can trade at a slight premium as compared to its peer’s average, considering, the company’ focus on maximising liquidity, increase in top and bottom line in 4QFY21, decent outlook and product launches. We have taken peers like VMware Inc (NYSE: VMW), Microsoft Corp (NASDAQ: MSFT), to name a few.  Considering the recent Sales Cloud 360, resilient business, strong 04FY21 results, upgraded outlook and current trading levels, we give a “Hold” recommendation on the stock at the closing price of $231.28, up by 3.04% on 9 April 2021. 

CRM Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Note: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.