Celebrations may be in order for Microsoft Corporation (NASDAQ:MSFT) shareholders, with the analysts delivering a significant upgrade to their statutory estimates for the company. The consensus estimated revenue numbers rose, with their view now clearly much more bullish on the company’s business prospects. The market may be pricing in some blue sky too, with the share price gaining 13% to US$243 in the last 7 days. We’ll be curious to see if these new estimates convince the market to lift the stock price higher still.
Following the upgrade, the most recent consensus for Microsoft from its 44 analysts is for revenues of US$213b in 2023 which, if met, would be an okay 4.9% increase on its sales over the past 12 months. Prior to the latest estimates, the analysts were forecasting revenues of US$213b in 2023. Overall it looks like Microsoft is performing in line with analyst expectations, given the analysts have updated their numbers and there’s been no real change to this year’s forecast following these updates.
View our latest analysis for Microsoft
There was no particular change to the consensus price target of US$297, with Microsoft’s latest outlook seemingly not enough to result in a change of valuation. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company’s valuation. The most optimistic Microsoft analyst has a price target of US$411 per share, while the most pessimistic values it at US$234. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. It’s pretty clear that there is an expectation that Microsoft’s revenue growth will slow down substantially, with revenues to the end of 2023 expected to display 6.5% growth on an annualised basis. This is compared to a historical growth rate of 14% over the past five years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 9.4% per year. So it’s pretty clear that, while revenue growth is expected to slow down, the wider industry is also expected to grow faster than Microsoft.
The Bottom Line
The most important thing to take away is that analysts reconfirmed their revenue estimates for this year, suggesting that the business is performing in line with market expectations. They’re also anticipating slower revenue growth than the wider market. Given that analysts appear to be expecting substantial improvement in the sales pipeline, now could be the right time to take another look at Microsoft.
Using these estimates as a starting point, we’ve run a discounted cash flow calculation (DCF) on Microsoft that suggests the company could be somewhat undervalued. You can learn more about our valuation methodology on our platform here.
Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
Add Comment