Microsoft (MSFT – Free Report) has seen its stock price soar over the last year, driven in large part by cloud computing growth. On Monday, shares of Microsoft climbed to a new all-time high as investors begin to prepare for the company’s upcoming earnings report.
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Microsoft stock hit $91.34 per share after gaining over 1.45%. As of today, the company has already added a total of about $43 billion to its market capitalization since the start of 2018.
Now, with Microsoft set to close the day as just the third public U.S. company in history with a market value of $700 billion or more—joining fellow tech powers Apple (AAPL – Free Report) and Alphabet (GOOGL – Free Report) —let’s take a look at why Microsoft is currently a Zacks Rank #2 (Buy).
Microsoft is projected to see its quarterly sales climb to $28.35 billion, based on our current Zacks Consensus Estimates, which would mark an 8.77% year-over-year climb. The company is expected to see its bottom-line expand by 3.61% to reach $0.86 per share.
The company is projected to see its full fiscal year 2018 revenues hit $105.97 billion. This estimate represents an 11.81% jump over 2017 and would represent outstanding full-year top-line growth for a company of Microsoft’s age and size. Looking even farther down the road, the company is expected to expand its EPS figures at an annualized rate of 12.60% over the next three to five years.
Investors should also be happy to note that Microsoft has topped or matched earnings estimates in 15 of the last 17 quarters, including the trailing six periods. Last quarter, Microsoft posted a 16.67% earning beat after topping estimates by 38% in its previous quarter.
Last quarter the company’s sales popped 12% year-over-year to reach $24.5 billion, while its net income rose 16%. Microsoft also posted operating income of $7.7 billion, which marked a 15% jump.
Microsoft’s top and bottom-line growth can be attributed in large part to the company’s ability to expand its “Productivity and Business Processes” division, driven by 10% growth in Office commercial products and cloud services revenue. On top of that, the company’s “Intelligent Cloud” division sales hit $6.9 billion, which marked a 14% jump from the year-ago period.
Microsoft’s server products and cloud services revenue experienced a 17% gain, driven by Azure revenue growth. “This quarter we exceeded $20 billion in commercial cloud ARR, outpacing the goal we set just over two years ago,” CEO Satya Nadella said in a statement.
The company is now trying to compete directly against Amazon’ (AMZN – Free Report) Web Services division. Microsoft compares AWS directly to its Azure business on its own website: “When you compare AWS versus Azure, you’ll find that Azure has more comprehensive compliance coverage with more than 70 compliance offerings, and was the first major cloud provider to contractually commit to the requirements of the General Data Protection Regulation (GDPR).”
Global Software-as-a-Service revenue is predicted to grow from $57 billion in 2017 to nearly $100 billion in 2020. This is a great sign for Microsoft, which now relies on its clould computing and service-based business more than ever, as its traditional personal computing business slows down.
Microsoft is currently trading at 26x earnings, which is well below the “Computer – Software” industry average. On top of that, the company has seen its cash flow growth rate hit 17.18%. This crushes the industry average and should help Microsoft further invest in new technologies such as artificial intelligence.
Microsoft is currently a Zacks Rank #2 (Buy) and is set to report its Q2 fiscal 2018 earnings after the closing bell on Wednesday, Jan. 31.
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Last year, it generated $8 billion in global revenues. By 2020, it’s predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce “”the world’s first trillionaires,”” but that should still leave plenty of money for regular investors who make the right trades early.