Microsoft: Rebounding After Strong Q3 FY22 Results But Still Cheap

(Preview) Company Update (MSFT US) (Buy)

Summary

• MSFT shares are up 5.4% pre-market after strong results overnight, but remain 19% below their December peak and at 31.9x CY21 EPS.

• Revenues and EBIT grew by more than 20% on a currency-neutral basis, led by strong double-digit growth in two of the three segments.

• Azure revenues grew 49%; Office, Windows, Dynamics, Linkedin and Search all grew double-digits (excluding currency).

• The new Q4 FY22 outlook implies EPS will likely grow by more than 16% this year; the impact from any macro risks will be limited.

• With shares at $284.87, we expect a total return of 77% (20.1% annualized) by June 2025, in just over 3 years. Buy.

Introduction

We review our investment case on Microsoft Corporation after Q3 FY22 results were released overnight (Tuesday, April 26). MSFT stock is up 5.4% in pre-market trading (at $284.87) as of 7 am EST this morning.

Microsoft has been a core holding in our portfolio since 2014, and we initiated our Buy rating on Seeking Alpha in December 2020. Since then, shares ha…