Microsoft Corp’s (NASDAQ:MSFT) share price broke the $100 barrier earlier this month, causing some investors to question whether the stock is now getting ahead of itself. Yes, it is, but you should own it anyway, says John Zechner of J. Zechner Associates, who claims that the tech giant is firing on all cylinders.
Microsoft will be reporting its fourth quarter fiscal 2018 next month, with investors looking to see not only if the company can repeat its revenue and earnings beat of Q3 but what management expects over the next few quarters.
In April, Microsoft reported Q3 earnings per share of 95 cents, compared to the 85-cent consensus, on revenues of $26.82 billion, compared to the Street’s $25.77 billion. (All figures in US dollars.) At the time, management said it expected revenue in Q4 to reach even higher, landing between $28.8 and $29.5 billion.
Zechner says that Microsoft’s performance is deserving of more praise than it’s getting, even at its current share price.
“It’s had a great run and the stock is trading at a high multiple, but what [Microsoft CEO] Satya Nadella has done with this company is extremely impressive. I mean, this guy should be considered as one of the strongest CEOs out there,” Zechner told BNN Bloomberg.
“They’ve really morphed into the cloud business exceptionally well, and there’s lots of growth ahead now, so it will get a higher multiple,” he says. “[It has] more of a recurring business base. And, again, you still own the largest operating system out there. So I think it’s a great asset.”
“To me, it’s a core holding in tech and I don’t care if it got a little bit expensive,” says Zechner.
Microsoft made headlines earlier this month with the $7.5 billion acquisition of coding platform GitHub. CEO Nadella said that with computing becoming more embedded in every business sector and all aspects of society, the GitHub deal makes sense.
“If you think about Microsoft, we’ve always been a ‘development first’ company,” says Nadella to Bloomberg. “That’s how we started, with the developer tools for [the Altair 8800 microcomputer] and now we’re all in on open source and so the coming together of GitHub and Microsoft makes a lot of sense for us. We can contribute a lot while staying true to the original ethos of GitHub.”
Zechner compares Microsoft to Alphabet, saying that both companies are solid tech investments.
“I think they’re good, long-term core holdings and I think [Microsoft] will continue to deliver,” he says. “There’s no doubt that it’s had a great run and is probably a little bit ahead of itself in valuation but if you own it, I’d hang onto it and if we had a pullback in the market or something, I’d add to it. It’s a winner, I think.”