Microsoft (MSFT) Exceeds Market Returns: Some Facts to Consider

Zacks Equity Research
·3-min read

Microsoft (MSFT) closed the most recent trading day at $416.07, moving +0.62% from the previous trading session. The stock outpaced the S&P 500's daily gain of 0.15%. At the same time, the Dow added 0.36%, and the tech-heavy Nasdaq gained 0.17%.

The software maker's shares have seen of 0% over the last month, not keeping up with the Computer and Technology sector's gain of 5.13% and the S&P 500's gain of 3.2%.

The investment community will be closely monitoring the performance of Microsoft in its forthcoming earnings report. The company is predicted to post an EPS of $2.90, indicating a 7.81% growth compared to the equivalent quarter last year. At the same time, our most recent consensus estimate is projecting a revenue of $64.16 billion, reflecting a 14.19% rise from the equivalent quarter last year.

For the full year, the Zacks Consensus Estimates are projecting earnings of $11.77 per share and revenue of $244.41 billion, which would represent changes of +19.98% and +15.33%, respectively, from the prior year.

Investors might also notice recent changes to analyst estimates for Microsoft. These recent revisions tend to reflect the evolving nature of short-term business trends. As a result, upbeat changes in estimates indicate analysts' favorable outlook on the company's business health and profitability.

Research indicates that these estimate revisions are directly correlated with near-term share price momentum. To utilize this, we have created the Zacks Rank, a proprietary model that integrates these estimate changes and provides a functional rating system.

Ranging from #1 (Strong Buy) to #5 (Strong Sell), the Zacks Rank system has a proven, outside-audited track record of outperformance, with #1 stocks returning an average of +25% annually since 1988. Over the last 30 days, the Zacks Consensus EPS estimate has moved 0.06% higher. Microsoft is currently sporting a Zacks Rank of #3 (Hold).

With respect to valuation, Microsoft is currently being traded at a Forward P/E ratio of 35.13. This expresses a premium compared to the average Forward P/E of 27.81 of its industry.

It's also important to note that MSFT currently trades at a PEG ratio of 2.18. The PEG ratio bears resemblance to the frequently used P/E ratio, but this parameter also includes the company's expected earnings growth trajectory. The Computer - Software industry had an average PEG ratio of 2.29 as trading concluded yesterday.

The Computer - Software industry is part of the Computer and Technology sector. This group has a Zacks Industry Rank of 68, putting it in the top 27% of all 250+ industries.

The Zacks Industry Rank gauges the strength of our industry groups by measuring the average Zacks Rank of the individual stocks within the groups. Our research shows that the top 50% rated industries outperform the bottom half by a factor of 2 to 1.

Don't forget to use Zacks.com to keep track of all these stock-moving metrics, and others, in the upcoming trading sessions.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

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