Microsoft (MSFT:NAS) Fundamental Valuation Report

Fundamental Valuation Report



This Report was generated using the valuation tools available on For a free 30 day trial click here.

Close Price/Date
$106.94 (USD) 13/11/2018

Weighted Valuation
$115.39 (USD)

Overall Rating
Undervalued by 7.9%

Valuation Models Analyst Consensus: $127.00 (USD)
(in order of importance) Discounted Cash Flow: $97.98 (USD)
Valuation Methods This company is:
Cash Flow: Overvalued on a Cash Flow Valuation
Comparable Company: Overvalued on a Comparable Valuation
Asset: Overvalued on an Asset Valuation

Company Overview (MSFT:NAS USD)

Price 106.94
Range 106.64 – 108.74
52 week 81.08 – 115.61
Open 107.55
Vol / Avg. 35.32M/39.03M
Mkt cap 820.89B
P/E 44.01
Div/yield 1.65/0.02
EPS 2.13
Shares 7.68B
Beta 1.28

Company Description

Microsoft develops and licenses consumer and enterprise software. It is known for its Windows operating systems and Office productivity suite. The company is organized into three overarching segments: productivity and business processes (legacy Microsoft Office, cloud-based Office 365, Exchange, SharePoint, Skype, LinkedIn, Dynamics), intelligence cloud (infrastructure- and platform-as-a-service offerings Azure, Windows Server OS, SQL Server), and more personal computing (Windows Client, Xbox, Bing search, display advertising, and Surface laptops, tablets, and desktops). Through acquisitions, Microsoft owns Xamarin, LinkedIn, and GitHub. It reports revenue in product and service and other revenue on its income statement.

Valuation Details

 We have up to 6 valuation points for each company. Details are at the bottom of the report.

Discounted Cash Flow and Sensitivity Analysis for MSFT:NAS

Using a discounted cash flow model we generated an intrinsic value of $97.98 (USD) for MSFT:NAS

Sensitivity Analysis

(showing how changes in the input variables impact the DCF calculation)

MSFT:NAS Current Values Valuation If Dropped * Valuation If Raised *
Calculated Value: $97.98 1% 5% 1% 5%
WACC (or Ke) 8.79 $120.97 $81.76
Terminal Growth Rate 3.00 $83.37 $118.68
Tax Rate 0.19 $104.98 $90.98
Cash Flow 74,829,088,000 $91.84 $104.12
Capital Expenditures -7,906,600,000 $97.38 $98.58
Long Term Debt 74,690,000,000 $98.46 $97.49

* Changes are absolute: ex WACC from 8% to 7%

Comparables Model

Using similar companies and price based ratios we generated a valuation of $47.99 (USD) for MSFT:NAS. We also generated a valuation of $125.03 (USD) using other metrics and comparables.
The comparable companies were Apple (AAPL:NAS), Cisco Systems (CSCO:NAS), Facebook (FB:NAS), Alphabet (GOOG:NAS) and Intel (INTC:NAS).

Company MSFT:NAS End Date Value
Earnings/Share $2.43 (USD)
Book Value/Share $11.20 (USD)
Sales/Share $14.76 (USD)
Cash Flow/Share $5.79 (USD)
EBITDA/Share $6.35 (USD)
Price Based on Comps Adjustment Factor (%)
$59.30 (USD) -66.1
$59.72 (USD) -8.1
$78.31 (USD) 9.8
$72.48 (USD) -42.0
$77.23 (USD) -53.7
43.95 PE Ratio 477.02 19.79 2287.50 22.86 40.40 14.56
9.54 PB Ratio 5.33 9.04 4.80 5.43 4.41 2.99
7.24 PS Ratio 5.31 4.36 4.53 8.60 5.84 3.21
18.44 PCF Ratio 14.20 15.24 16.34 15.21 16.75 7.47
14.61 EV to EBITDA 12.16 12.87 11.52 13.72 15.71 6.96


Using a multiples approach we generated a valuation of  $82.01 (USD) for MSFT:NAS

Company MSFT:NAS End Date Value
Earnings/Share $2.43 (USD)
Book Value/Share $11.20 (USD)
Sales/Share $14.76 (USD)
Cash Flow/Share $5.79 (USD)
EBITDA/Share $6.35 (USD)
Price Based on Comps Adjustment Factor
$76.88 (USD) 0
$73.56 (USD) 0
$80.85 (USD) 0
$81.88 (USD) 0
$96.87 (USD) 0
Ratios Ratio Average
PE Ratio 31.64
PB Ratio 6.57
PS Ratio 5.48
PCF Ratio 14.14
EV to EBITDA 15.25

Adjusted Book Value versus Historical Price to Book

The average the Price to Book ratio for  MSFT:NAS for the last 10 years was  6.48

We ran the Adjusted Book Value for  MSFT:NAS and generated a book value of  $11.20 (USD)
By multiplying these we get an adjusted valuation of  $72.51 (USD)

Analyst Data

In the Stockcalc database there are 8 analysts that provide a valuation for MSFT:NAS. The 8 analysts have a concensus valuation for MSFT:NAS for 2019 of $127.00 (USD).

MSFT:NAS Microsoft

Analyst Recommendation
Buy Hold Sell Rating
(of 5)
Guidance As Of
9 0 0 4.9000 Buy 2018-11-12

Current Price: 106.94 USD

Analyst Consensus
USD Millions 2019 2020 2021
Mean EPS 4.38 5.16 6.18
# EPS Analysts 8 8 3
Mean Revenue 125,760.30 138,831.70 153,538.40
# Revenue Analysts 6 6 4
Mean Target Price 127.00
Mean Cash Flow 6.51 7.41 9.19
Mean EBITDA 54,853.70 62,245.00 72,649.60
Mean Net Income 34,384.10 39,496.30 47,145.20
Mean Debt Outstanding -17,902.60 -24,364.60 -126,971.80
Mean Tax Rate 16.50 16.75 17.00
Mean Growth Rate 12.39
Mean Capital Expenditure 14,800.60 16,393.60 16,845.50

Explanation of Valuation Models

We have up to 6 valuation points for each company in the database.

The Discounted Cash Flow (DCF) valuation is a cash flow model where cash flow projections are discounted back to the present to calculate value per share. DCF is a common valuation technique especially for companies undergoing irregular cash flows such as resource companies (mining, forestry, oil and gas) going though price cycles or smaller companies about to generate cash flow (junior exploration companies, junior pharma, technology firms…).

The Price Comparables valuation is the result of valuing the company we are looking at on the basis of ratios from selected comparable companies: Price to Earnings, Price to Book, Price to Sales, Price to Cash Flow, Enterprise Value (EV) to EBITDA. Each of these ratios for the selected comparable companies are averaged and multiplied by the values for the company we are interested in to calculate a value per share for our selected company.

We have included the Other Comparables as a way to value companies that cannot be valued using Earnings based ratios. This technique is very useful for companies still experiencing negative cash flows such as mining exploration firms. We use Cash/Share, Book Value/Share, MarketCap, 1 Year Return, NetPPE as the ratios here. Each of these ratios for the selected comparable companies are averaged and multiplied by the values for the company we are interested in to calculate a value per share for our selected company.

Multiples are similar to Price comparables where we look at current or historic ratios for the company in question to assess what it should be worth today based on those historic ratios. We use the same 5 ratios as in the price comparables and value the company with its historic averages.

With Adjusted Book Value (ABV) we calculate the book value per share for the company based on its balance sheet and multiply that book value per share by its historical price to book ratio to calculate a value per share.

If we have Analyst coverage for the company we use the consensus target price here.

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