Microsoft Corporation

Microsoft Corporation (NASDAQ: MSFT) is a software company that creates and licences consumer and corporate software. The company generate revenues through three segments, namely, Productivity and business processes (legacy Microsoft Office, cloud-based Office 365, Exchange, SharePoint, Skype, LinkedIn, Dynamics), Intelligence Cloud (infrastructure and platform-as-a-service offerings Azure, Windows Server OS, SQL Server), and more personal computing (Windows Client, Xbox, Bing search, display advertising, and Surface laptops, tablets, and desktops).

Why should Investors Book Profits?

• Decline in Margins: The company's Gross, EBITDA, and Net margins decreased sequentially in Q2FY22 (ended December 31, 2021) to 67.2%, 49.8%, and 36.3%, respectively, from 69.9%, 51.7%, and 45.2% in Q1FY22.
• Fall in Return Metrics: The company's ROE and reinvestment rate fell to 12.0% and 9.1% in Q2FY21, respectively, from 14.0% and 10.8% in Q1FY22. If this trend continues, investors and other shareholders may face difficulties in the long term.
• Technical Indicators: On the daily chart, MCFT prices are trading below the horizontal trend line and facing the same resistance. Moreover, the momentum oscillator RSI (14-period) is trading at ~61.92, reversing from the higher levels. On the daily charts, the prices are trading below the trend-following indicators 21-period and 50- period SMA, which may act as a resistance level for the stock.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

(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:

MSFT's stock price has surged 35.37% in the past twelve months and is currently leaning towards the higher-band of its 52-week range of USD 231.10 to USD 349.67. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 270.00.

Considering the current trading levels, macro headwinds, decline in margins, fall in return ratios, current valuation, and unfavourable technical indicators, we recommend a "Sell" rating on the stock at the closing price of USD 313.86, down 0.49%, as of March 30, 2022

Three-Year Technical Price Chart (as of March 30, 2022). Source: REFINITIV, Analysis by Kalkine Group

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

Disclaimer

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