Microsoft MSFT shares have jumped over 35% in 2019 to outpace the S&P 500's 17% climb, as the historic tech firm continues to flex its muscles in an array of growth industries, from gaming to cloud computing. Now, let's see if investors should consider buying MSFT stock at its new highs, with Microsoft set to report its fourth-quarter and fiscal 2019 financial results on July 18.
The Quick Pitch
Microsoft's expansion into the cloud computing industry has helped its revenues grow at an impressive clip and help prove to Wall Street it won't rest on its laurels. The company's Intelligent Cloud revenue surged 22% last quarter, with Azure up 73%. MSFT is now industry-leader Amazon's AMZN biggest competitor in the space. In fact, they are currently fighting for a $10 billion, winner-take-all U.S. military cloud contract , after IBM IBM and Oracle ORCL were eliminated earlier in the process-this could be awarded as soon as August.
Along with its impressive cloud growth, the Redmond, Washington-based firm has expanded its IoT and artificial intelligence segments. Meanwhile, it continues to bolster its business through acquisitions, from LinkedIn to GitHub. MSFT also recently laid out some of its next-generation video game plans to help it fight off challenges from Google GOOGL in the $135 billion global gaming industry. Plus, Microsoft's legacy Office and Windows businesses remain vital to enterprises and individuals as they morph and evolve with times.
As we touched on at the outset, MSFT stock has soared over 35% in 2019. The stock's climb is part of a larger FAANG comeback, with Amazon, Apple AAPL , Netflix NFLX , and Alphabet accounting for 20.5% of the S&P's total return in the first-half of 2019.
Microsoft's strong 2019 has helped it become the world's most valuable public firm, with a market cap of over $1 trillion. MSFT popped over 1% Wednesday to reach a new 52-week intraday high of $138.58 per share.
Q4 & Fiscal 2019 Projections
Moving on, our current Zacks Consensus Estimate calls for MSFT's Q4 fiscal 2019 revenue to pop 8.8% to $32.73 billion. This would mark a slowdown from Q3's 14% top-line expansion, but would come on top of Q4 2018's 17% revenue growth, which was the company's strongest quarterly performance last year.
Meanwhile, Microsoft's full-year fiscal 2019 revenue is projected to jump roughly 13% from $110.4 billion in 2018 to $124.85 billion. This would mark just the slightest downturn from MSFT's 14% top-line expansion last year. But if we peek ahead to fiscal 2020, we will see that the company's 2020 revenues are projected to come in 10.6% above our 2019 estimate in a sign of sustained growth.
At the bottom end of the income statement, Microsoft's adjusted Q4 earnings are projected to climb 7.1%, with fiscal 2019 expected to climb 18%. Last quarter, the firm's EPS popped 20%.
Investors should also note that MSFT boasts an impressive history o f quarterly earnings beats, including a 14% surprise last quarter that helped boost its trailing four-period average to 10%. Microsoft stock doesn't move very significantly around earnings but did pop nearly 3% following its Q3 release.
Despite Microsoft's impressive run, its valuation picture doesn't appear significantly stretched, especially compared to its industry. MSFT is trading at 26.7X forward 12-month Zacks Consensus earnings estimates at the moment. This marks a discount compared to industry's 28.3 average. We can also see that Microsoft has, for the most part, traded below the Computer-Software Market over the last five years.
Microsoft is a Zacks Rank #3 (Hold) at the moment, with "B" grades for both Growth and Momentum in our Style Scores system. It is important to note that MSFT's rank could change if analysts were to update their estimates in the run-up to the release of its quarterly results on Thursday, July 18-when all eyes will likely be on its cloud computing division.
Microsoft, which is also a dividend payer with a yield of 1.35% at the moment, appears to be a solid long-term buy and hold stock that provides exposure to multiple growth tech industries. Yet, of course, there are no guarantees that MSFT stock doesn't face a near-term selloff after its stellar first half of 2019, no matter how impressive its Q4 results and 2020 guidance might be.
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