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Buy Microsoft Stock On SALE After Q4 Earnings Sell Off

MSFT Stock Falls 7% After Hours, Starbucks Earnings Boost, and Warren Buffett Sells Bank Of America

July 31, 2024

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My Top Stock Just Fell After Earnings…

Today, I'm diving into Microsoft’s Q4 2024 earnings. This includes a full look at the report, with the positive and negative takeaways. Also, I do an updated stock analysis on MSFT, provide price targets, and discuss whether this dip in stock price presents a buying opportunity.

Let’s do this!

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THE KEY STORY

Buy Microsoft On SALE After Sell Off | MSFT Stock Analysis Q4 2024

Microsoft's Impressive Track Record

Microsoft, the second most valuable company globally, boasts a market cap of $3.14 trillion. Over the past decade, the software giant has delivered stellar returns, largely driven by its leading position in the cloud market. With consistent earnings growth and a robust dividend policy, Microsoft has been a favorite among investors. However, the stock recently fell as much as 7% following its Q4 2024 earnings report.

Earnings Report Breakdown

Despite the initial 7% drop, Microsoft’s stock has already started to recover, currently down 3.61% after hours. Including this decline, the stock is nearly 15% off its all-time high. But were the earnings really that bad? I’d argue no. The results still show strong growth potential.

Key Financial Metrics

  • Revenue: $64.7 billion for the quarter, a 15% increase year-over-year.

  • Operating Income: $27.9 billion, a 15% increase year-over-year.

  • Net Income: $22 billion, a 10% increase year-over-year.

  • Diluted EPS: $2.95, a 10% increase year-over-year.

Segment Performance

Productivity and Business Processes

  • Revenue: $20.3 billion, up 11% year-over-year.

  • Office 365: Significant growth in commercial revenue (12%). Consumer segments revenue increased 3%.

  • LinkedIn: Revenue up 10% year-over-year.

Intelligent Cloud

  • Revenue: $28.5 billion, up 19% year-over-year.

  • Azure: Revenue growth of 29% year-over-year (30% in constant currency).

More Personal Computing

  • Revenue: $15.9 billion, up 15% year-over-year.

  • Notable Growth: Xbox revenue up 61% (58 points from the Activision Blizzard acquisition).

Keep Reading For My Thoughts On Microsoft Stock, Concerns, Earnings Estimates, Price Targets, etc…

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Concerns and Investments

One concern is the rising capital expenditures in their Data Center business. Capex grew to $13.9 billion for the quarter, up from $8.9 billion in Q4 2023. While this is a significant cost, it is a strategic investment to maintain leadership in AI and accelerate growth across other segments.

Future Growth and Valuation

Analysts project Microsoft to maintain strong growth, with EPS expected to grow by 15% in 2025, followed by 17% in 2026, 18% in 2027, and 18.7% in 2028. By 2028, EPS is projected to reach $21.63, giving it a P/E ratio of 19.5 at the current stock price. However, I believe Microsoft will likely trade at a higher multiple, closer to 30, given its growth prospects. That would put the 2028 stock price at $648.90.

Wall Street Analysts currently have a consensus price target for Microsoft stock of $425 per share. This presents a fair value at current prices.

My Investment Position

Currently, Microsoft is the top stock in my long-term dividend growth portfolio. I’m up 76% on my position, most of which was bought in Fall 2022 at an average cost of $239.31 per share. If the stock price dips into the high-mid $300 range, I plan to dollar-cost average and buy more shares.

Conclusion

Microsoft remains a solid business trading at a fair valuation. Despite short-term concerns about capex and slight deceleration in Azure growth, the long-term outlook remains strong. If the stock continues to decline, it could present an excellent buying opportunity.

Disclaimer: This is not financial advice. Please do your own research before making any investment decisions.

THE NEWS

Warren Buffett’s Berkshire Hathaway sells Bank of America for a ninth straight day

NOTABLE DIVIDEND INCREASES

Clorox Continues Dividend Growth Streak

  • $CLX - Clorox declares $1.22/share quarterly dividend, 1.7% increase from prior dividend of $1.20.

  • $BP - BP p.l.c. declares $0.48/ADS quarterly dividend, 10% increase from prior dividend of $0.4362.

  • $LSTR - Landstar System declares $0.36/share quarterly dividend, 9.1% increase from prior dividend of $0.33.

Source: Dividend Data

Thanks for the read! Let me know what you thought by replying back to this email.

- Zach
Dividend Data


Disclaimer: Dividend Dividend Weekly (Dividend Data) is not a professional financial service. All materials released from Dividend Data Weekly (Dividend Data) are for educational and entertainment purposes. Dividend Data Weekly (Dividend Data) is not a replacement for a professional's opinion. Contributors to the Dividend Data Weekly (Dividend Data) might have equities mentioned in the newsletter