Offshore
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โ Dimitry Nakhla | Babylon Capitalยฎ
A quality valuation analysis on $META ๐ง๐ฝโโ๏ธ
โขNTM P/E Ratio: 22.41x
โข5-Year Mean: 25.26x
โขNTM FCF Yield: 3.04%
โข5-Year Mean: 3.39%
As you can see, $META appears to be trading near fair value
Going forward, investors can expect to receive ~12% MORE in earnings per share & ~10% LESS in FCF per share๐ง ***
Before we get into valuation, letโs take a look at why $META is a quality business
BALANCE SHEETโ
โขCash & Equivalents: $77.82B
โขLong-Term Debt: $28.83B
$META has an excellent balance sheet, an AA- S&P Credit Rating & 127x FFO Interest Coverage Ratio
RETURN ON CAPITALโ
โข2020: 23.5%
โข2021: 33.7%
โข2022: 22.0%
โข2023: 25.7%
โข2024: 29.4%
RETURN ON EQUITYโ
โข2020: 25.4%
โข2021: 31.1%
โข2022: 18.5%
โข2023: 28.0%
โข2024: 37.1%
$META has great return metrics, highlighting the financial efficiency of the business
REVENUESโ
โข2019: $70.70B
โข2024: $164.50B
โขCAGR: 18.39%
FREE CASH FLOWโ
โข2019: $21.21B
โข2024: $54.07B
โขCAGR: 20.58%
NORMALIZED EPSโ
โข2019: $8.56
โข2024: $23.86
โขCAGR: 22.75%
SHARE BUYBACKSโ
โข2019 Shares Outstanding: 2.88B
โขLTM Shares Outstanding: 2.61B
By reducing its shares outstanding ~9%, $META increased its EPS by ~10% (assuming 0 growth)
MARGINSโ
โขLTM Gross Margins: 81.7%
โขLTM Operating Margins: 41.5%
โขLTM Net Income Margins: 37.9%
***NOW TO VALUATION ๐ง
As stated above, investors can expect to receive ~12% MORE in EPS & ~10% LESS in FCF per share
Using Benjamin Grahamโs 2G rule of thumb, $META has to grow earnings at an 11.22% CAGR over the next several years to justify its valuation
Today, analysts anticipate 2025 - 2027 EPS growth over the next few years to be slightly greater than the (11.22%) required growth rate:
2025E: $24.75 (3.7% YoY) *FY Dec
2026E: $28.36 (14.6% YoY)
2027E: $32.96 (16.2% YoY)
$META has a decent track record of meeting analyst estimates ~2 years out, so letโs assume $META ends 2027 with $32.96 in EPS & see its CAGR potential assuming different multiples
24x P/E: $791.04๐ต โฆ ~15.7% CAGR
23x P/E: $758.08๐ต โฆ ~13.9% CAGR
22x P/E: $725.12๐ต โฆ ~12.0% CAGR
21x P/E: $692.16๐ต โฆ ~10.1% CAGR
20x P/E: $659.20๐ต โฆ ~8.1% CAGR
As you can see, $META appears to have double-digit CAGR potential if we assume >22x earnings, a multiple below its 5-year average (25.26x) and a multiple thatโs justified given its growth rate, balance sheet, visionary CEO & investments in AI & LLMs
As Iโve mentioned before: โโฆ the increased investment in future growth and necessary Al development, which has the potential to lead to better growth prospects, should be viewed with a bullish tone rather than a bearish oneโ โ (which can lead to a sustainable re-rating over the next few years)
Today at $540๐ต $META appears to be slightly undervalued, those buying today have a small margin of safety and will not need to rely on margin expansion
I consider $META a great buy ~$500๐ต, offering ~11% CAGR assuming a conservative 20x 2027 EPS est
#stocks #investing
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๐๐๐๐๐๐๐๐๐๐โผ๏ธ: ๐๐ก๐ข๐ฌ ๐ข๐ฌ ๐๐๐ ๐๐ง๐ฏ๐๐ฌ๐ญ๐ฆ๐๐ง๐ญ ๐๐๐ฏ๐ข๐๐. ๐๐๐๐ฒ๐ฅ๐จ๐ง ๐๐๐ฉ๐ข๐ญ๐๐ฅยฎ ๐๐ง๐ ๐ข๐ญ๐ฌ ๐ซ๐๐ฉ๐ซ๐๐ฌ๐๐ง๐ญ๐๐ญ๐ข๐ฏ๐๐ฌ ๐ฆ๐๐ฒ ๐ก๐๐ฏ๐ ๐ฉ๐จ๐ฌ๐ข๐ญ๐ข๐จ๐ง๐ฌ ๐ข๐ง ๐ญ๐ก๐ ๐ฌ๐๐๐ฎ๐ซ๐ข๐ญ๐ข๐๐ฌ ๐๐ข๐ฌ๐๐ฎ๐ฌ๐ฌ๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๐๐ญ.
๐๐ก๐ ๐ข๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง ๐๐จ๐ง๐ญ๐๐ข๐ง๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๐๐ญ ๐ข๐ฌ ๐ข๐ง๐ญ๐๐ง๐๐๐ ๐๐จ๐ซ ๐ข๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง๐๐ฅ ๐ฉ๐ฎ๐ซ๐ฉ๐จ๐ฌ๐๐ฌ ๐จ๐ง๐ฅ๐ฒ ๐๐ง๐ ๐ฌ๐ก๐จ๐ฎ๐ฅ๐ ๐ง๐จ๐ญ ๐๐ ๐๐จ๐ง๐ฌ๐ญ๐ซ๐ฎ๐๐ ๐๐ฌ ๐ข๐ง๐ฏ๐๐ฌ๐ญ๐ฆ๐๐ง๐ญ ๐๐๐ฏ๐ข๐๐ ๐ญ๐จ ๐ฆ๐๐๐ญ ๐ญ๐ก๐ ๐ฌ๐ฉ๐๐๐ข๐๐ข๐ ๐ง๐๐๐๐ฌ ๐จ๐ ๐๐ง๐ฒ ๐ข๐ง๐๐ข๐ฏ๐ข๐๐ฎ๐๐ฅ ๐จ๐ซ ๐ฌ๐ข๐ญ๐ฎ๐๐ญ๐ข๐จ๐ง. ๐๐๐ฌ๐ญ ๐ฉ๐๐ซ๐๐จ๐ซ๐ฆ๐๐ง๐๐ ๐ข๐ฌ ๐ง๐จ ๐ ๐ฎ๐๐ซ๐๐ง๐ญ๐๐ ๐จ๐ ๐๐ฎ๐ญ๐ฎ๐ซ๐ ๐ซ๐๐ฌ๐ฎ๐ฅ๐ญ๐ฌ.
๐๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง ๐๐จ๐ง๐ญ๐๐ข๐ง๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๏ฟฝ[...]
A quality valuation analysis on $META ๐ง๐ฝโโ๏ธ
โขNTM P/E Ratio: 22.41x
โข5-Year Mean: 25.26x
โขNTM FCF Yield: 3.04%
โข5-Year Mean: 3.39%
As you can see, $META appears to be trading near fair value
Going forward, investors can expect to receive ~12% MORE in earnings per share & ~10% LESS in FCF per share๐ง ***
Before we get into valuation, letโs take a look at why $META is a quality business
BALANCE SHEETโ
โขCash & Equivalents: $77.82B
โขLong-Term Debt: $28.83B
$META has an excellent balance sheet, an AA- S&P Credit Rating & 127x FFO Interest Coverage Ratio
RETURN ON CAPITALโ
โข2020: 23.5%
โข2021: 33.7%
โข2022: 22.0%
โข2023: 25.7%
โข2024: 29.4%
RETURN ON EQUITYโ
โข2020: 25.4%
โข2021: 31.1%
โข2022: 18.5%
โข2023: 28.0%
โข2024: 37.1%
$META has great return metrics, highlighting the financial efficiency of the business
REVENUESโ
โข2019: $70.70B
โข2024: $164.50B
โขCAGR: 18.39%
FREE CASH FLOWโ
โข2019: $21.21B
โข2024: $54.07B
โขCAGR: 20.58%
NORMALIZED EPSโ
โข2019: $8.56
โข2024: $23.86
โขCAGR: 22.75%
SHARE BUYBACKSโ
โข2019 Shares Outstanding: 2.88B
โขLTM Shares Outstanding: 2.61B
By reducing its shares outstanding ~9%, $META increased its EPS by ~10% (assuming 0 growth)
MARGINSโ
โขLTM Gross Margins: 81.7%
โขLTM Operating Margins: 41.5%
โขLTM Net Income Margins: 37.9%
***NOW TO VALUATION ๐ง
As stated above, investors can expect to receive ~12% MORE in EPS & ~10% LESS in FCF per share
Using Benjamin Grahamโs 2G rule of thumb, $META has to grow earnings at an 11.22% CAGR over the next several years to justify its valuation
Today, analysts anticipate 2025 - 2027 EPS growth over the next few years to be slightly greater than the (11.22%) required growth rate:
2025E: $24.75 (3.7% YoY) *FY Dec
2026E: $28.36 (14.6% YoY)
2027E: $32.96 (16.2% YoY)
$META has a decent track record of meeting analyst estimates ~2 years out, so letโs assume $META ends 2027 with $32.96 in EPS & see its CAGR potential assuming different multiples
24x P/E: $791.04๐ต โฆ ~15.7% CAGR
23x P/E: $758.08๐ต โฆ ~13.9% CAGR
22x P/E: $725.12๐ต โฆ ~12.0% CAGR
21x P/E: $692.16๐ต โฆ ~10.1% CAGR
20x P/E: $659.20๐ต โฆ ~8.1% CAGR
As you can see, $META appears to have double-digit CAGR potential if we assume >22x earnings, a multiple below its 5-year average (25.26x) and a multiple thatโs justified given its growth rate, balance sheet, visionary CEO & investments in AI & LLMs
As Iโve mentioned before: โโฆ the increased investment in future growth and necessary Al development, which has the potential to lead to better growth prospects, should be viewed with a bullish tone rather than a bearish oneโ โ (which can lead to a sustainable re-rating over the next few years)
Today at $540๐ต $META appears to be slightly undervalued, those buying today have a small margin of safety and will not need to rely on margin expansion
I consider $META a great buy ~$500๐ต, offering ~11% CAGR assuming a conservative 20x 2027 EPS est
#stocks #investing
___
๐๐๐๐๐๐๐๐๐๐โผ๏ธ: ๐๐ก๐ข๐ฌ ๐ข๐ฌ ๐๐๐ ๐๐ง๐ฏ๐๐ฌ๐ญ๐ฆ๐๐ง๐ญ ๐๐๐ฏ๐ข๐๐. ๐๐๐๐ฒ๐ฅ๐จ๐ง ๐๐๐ฉ๐ข๐ญ๐๐ฅยฎ ๐๐ง๐ ๐ข๐ญ๐ฌ ๐ซ๐๐ฉ๐ซ๐๐ฌ๐๐ง๐ญ๐๐ญ๐ข๐ฏ๐๐ฌ ๐ฆ๐๐ฒ ๐ก๐๐ฏ๐ ๐ฉ๐จ๐ฌ๐ข๐ญ๐ข๐จ๐ง๐ฌ ๐ข๐ง ๐ญ๐ก๐ ๐ฌ๐๐๐ฎ๐ซ๐ข๐ญ๐ข๐๐ฌ ๐๐ข๐ฌ๐๐ฎ๐ฌ๐ฌ๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๐๐ญ.
๐๐ก๐ ๐ข๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง ๐๐จ๐ง๐ญ๐๐ข๐ง๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๐๐ญ ๐ข๐ฌ ๐ข๐ง๐ญ๐๐ง๐๐๐ ๐๐จ๐ซ ๐ข๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง๐๐ฅ ๐ฉ๐ฎ๐ซ๐ฉ๐จ๐ฌ๐๐ฌ ๐จ๐ง๐ฅ๐ฒ ๐๐ง๐ ๐ฌ๐ก๐จ๐ฎ๐ฅ๐ ๐ง๐จ๐ญ ๐๐ ๐๐จ๐ง๐ฌ๐ญ๐ซ๐ฎ๐๐ ๐๐ฌ ๐ข๐ง๐ฏ๐๐ฌ๐ญ๐ฆ๐๐ง๐ญ ๐๐๐ฏ๐ข๐๐ ๐ญ๐จ ๐ฆ๐๐๐ญ ๐ญ๐ก๐ ๐ฌ๐ฉ๐๐๐ข๐๐ข๐ ๐ง๐๐๐๐ฌ ๐จ๐ ๐๐ง๐ฒ ๐ข๐ง๐๐ข๐ฏ๐ข๐๐ฎ๐๐ฅ ๐จ๐ซ ๐ฌ๐ข๐ญ๐ฎ๐๐ญ๐ข๐จ๐ง. ๐๐๐ฌ๐ญ ๐ฉ๐๐ซ๐๐จ๐ซ๐ฆ๐๐ง๐๐ ๐ข๐ฌ ๐ง๐จ ๐ ๐ฎ๐๐ซ๐๐ง๐ญ๐๐ ๐จ๐ ๐๐ฎ๐ญ๐ฎ๐ซ๐ ๐ซ๐๐ฌ๐ฎ๐ฅ๐ญ๐ฌ.
๐๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง ๐๐จ๐ง๐ญ๐๐ข๐ง๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๏ฟฝ[...]
Offshore
โ Dimitry Nakhla | Babylon Capitalยฎ A quality valuation analysis on $META ๐ง๐ฝโโ๏ธ โขNTM P/E Ratio: 22.41x โข5-Year Mean: 25.26x โขNTM FCF Yield: 3.04% โข5-Year Mean: 3.39% As you can see, $META appears to be trading near fair value Going forward, investors canโฆ
๏ฟฝ๐ญ ๐ก๐๐ฌ ๐๐๐๐ง ๐จ๐๐ญ๐๐ข๐ง๐๐ ๐๐ซ๐จ๐ฆ ๐ฌ๐จ๐ฎ๐ซ๐๐๐ฌ ๐๐๐ฅ๐ข๐๐ฏ๐๐ ๐ญ๐จ ๐๐ ๐ซ๐๐ฅ๐ข๐๐๐ฅ๐, ๐๐ฎ๐ญ ๐ข๐ฌ ๐ง๐จ๐ญ ๐ ๐ฎ๐๐ซ๐๐ง๐ญ๐๐๐ ๐๐ฌ ๐ญ๐จ ๐๐จ๐ฆ๐ฉ๐ฅ๐๐ญ๐๐ง๐๐ฌ๐ฌ ๐จ๐ซ ๐๐๐๐ฎ๐ซ๐๐๐ฒ.
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Offshore
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โ Quiver Quantitative
BREAKING: Republican Rep. Anna Paulina Luna just said that she would support a discharge petition to ban congressional stock trading.
This would FORCE Speaker Mike Johnson to hold a vote on the bill. https://t.co/GzvBJNVzuw
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BREAKING: Republican Rep. Anna Paulina Luna just said that she would support a discharge petition to ban congressional stock trading.
This would FORCE Speaker Mike Johnson to hold a vote on the bill. https://t.co/GzvBJNVzuw
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Offshore
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โ Investing visuals
$MSFT Q1 Earnings ๐จ
โข Revenue $70.1B vs $68.4B Est.
โข EPS $3.46 vs $3.22 Est.
Stock is up +6% https://t.co/8asEb6ZP22
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$MSFT Q1 Earnings ๐จ
โข Revenue $70.1B vs $68.4B Est.
โข EPS $3.46 vs $3.22 Est.
Stock is up +6% https://t.co/8asEb6ZP22
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Offshore
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โ Investing visuals
$META Q1 Earnings ๐จ
โข Revenue $42.3B vs $41.4B Est.
โข EPS $6.43 vs $5.21 Est.
Stock is up +4% https://t.co/dQ5GBdRnb3
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$META Q1 Earnings ๐จ
โข Revenue $42.3B vs $41.4B Est.
โข EPS $6.43 vs $5.21 Est.
Stock is up +4% https://t.co/dQ5GBdRnb3
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Offshore
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โ Investing visuals
$HOOD Q1 Earnings ๐จ
โข Revenue $927M vs $917M Est.
โข EPS $0.37 vs $0.33 Est.
Stock is down -2% https://t.co/1OQBOM8Wjp
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$HOOD Q1 Earnings ๐จ
โข Revenue $927M vs $917M Est.
โข EPS $0.37 vs $0.33 Est.
Stock is down -2% https://t.co/1OQBOM8Wjp
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Offshore
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โ Dimitry Nakhla | Babylon Capitalยฎ
Microsoft $MSFT Q3 2025 Report ๐๏ธ
โ Rev: $70.06B vs $68.42B est | +13% YoY
โ EPS: $3.46 vs $3.22 est | +18% YoY
โ๏ธ Cloud Revenue $26.75B | +21% YoY https://t.co/hlRyDu1QK9
A quality valuation analysis on $MSFT ๐ง๐ฝโโ๏ธ
โขNTM P/E Ratio: 28.38x
โข5-Year Mean: 30.91x
โขNTM FCF Yield: 2.58%
โข5-Year Mean: 2.92%
As you can see, $MSFT appears to be trading near fair value
Going forward, investors can expect to receive ~9% MORE in earnings per share & ~12% LESS in FCF per share๐ง ***
Before we get into valuation, letโs take a look at why $MSFT is a quality business
BALANCE SHEETโ
โขCash & Equivalents: $71.56B
โขLong-Term Debt: $39.72B
$MSFT has an excellent balance sheet, an AAA S&P Credit Rating & 46x FFO Interest Coverage Ratio
RETURN ON CAPITALโ
โข2020: 26.4%
โข2021: 31.1%
โข2022: 34.0%
โข2023: 31.0%
โข2024: 29.7%
โขLTM: 28.8%
RETURN ON EQUITYโ
โข2020: 40.1%
โข2021: 47.1%
โข2022: 47.2%
โข2023: 38.8%
โข2024: 37.1%
โขLTM: 34.3%
$MSFT has great return metrics, highlighting the financial efficiency of the business
REVENUESโ
โข2014: $86.83B
โข2024: $245.12B
โขCAGR: 10.93%
FREE CASH FLOWโ
โข2014: $27.02B
โข2024: $74.07B
โขCAGR: 10.61%
NORMALIZED EPSโ
โข2014: $2.63
โข2024: $11.80
โขCAGR: 16.19%
SHARE BUYBACKSโ
โข2014 Shares Outstanding: 8.40B
โขLTM Shares Outstanding: 7.47B
By reducing its shares outstanding ~11%, $MSFT increased its EPS by ~12% (assuming 0 growth)
MARGINSโ
โขLTM Gross Margins: 69.4%
โขLTM Operating Margins: 45.0%
โขLTM Net Income Margins: 35.4%
PAID DIVIDENDSโ
โข2014: $1.12
โข2024: $3.00
โขCAGR: 10.35%
***NOW TO VALUATION ๐ง
As stated above, investors can expect to receive ~9% MORE in EPS & ~12% LESS in FCF per share
Using Benjamin Grahamโs 2G rule of thumb, $MSFT has to grow earnings at a 14.19% CAGR over the next several years to justify its valuation
Today, analysts anticipate 2025 - 2027 EPS growth over the next few years to be slightly less than the (14.19%) required growth rate:
2025E: $13.16 (11.5% YoY) *FY Jun
2026E: $14.95 (13.6% YoY)
2027E: $17.51 (17.1% YoY)
$MSFT has a decent track record of meeting analyst estimates ~2 years out, but letโs assume $MSFT ends 2027 with $17.51 in EPS & see its CAGR potential assuming different multiples
32x P/E: $560.32๐ต โฆ ~18.5% CAGR
30x P/E: $525.30๐ต โฆ ~15.1% CAGR
29x P/E: $507.79๐ต โฆ ~13.3% CAGR
28x P/E: $490.28๐ต โฆ ~11.5% CAGR
27x P/E: $472.77๐ต โฆ ~9.7% CAGR
As you can see, weโd have to assume a 28x multiple for $MSFT to have attractive return potential
At 27x earnings $MSFT has ok CAGR potential
$MSFT is one of the highest quality companies in the world & is firing on all cylinders
Although I wouldnโt want to rely on a >30x multiple, I feel comfortable accumulating $MSFT shares at ~$390๐ต while relying on 28x - 29x
I consider $MSFT a steal with a large margin of safety at $350๐ต, where I can reasonably expect 11.7% CAGR while assuming a conservative 25x
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๐๐๐๐๐๐๐๐๐๐โผ๏ธ: ๐๐ก๐ข๐ฌ ๐ข๐ฌ ๐๐๐ ๐๐ง๐ฏ๐๐ฌ๐ญ๐ฆ๐๐ง๐ญ ๐๐๐ฏ๐ข๐๐. ๐๐๐๐ฒ๐ฅ๐จ๐ง ๐๐๐ฉ๐ข๐ญ๐๐ฅยฎ ๐๐ง๐ ๐ข๐ญ๐ฌ ๐ซ๐๐ฉ๐ซ๐๐ฌ๐๐ง๐ญ๐๐ญ๐ข๐ฏ๐๐ฌ ๐ฆ๐๐ฒ ๐ก๐๐ฏ๐ ๐ฉ๐จ๐ฌ๐ข๐ญ๐ข๐จ๐ง๐ฌ ๐ข๐ง ๐ญ๐ก๐ ๐ฌ๐๐๐ฎ๐ซ๐ข๐ญ๐ข๐๐ฌ ๐๐ข๐ฌ๐๐ฎ๐ฌ๐ฌ๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๐๐ญ.
๐๐ก๐ ๐ข๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง ๐๐จ๐ง๐ญ๐๐ข๐ง๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๐๐ญ ๐ข๐ฌ ๐ข๐ง๐ญ๐๐ง๐๐๐ ๐๐จ๐ซ ๐ข๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง๐๐ฅ ๐ฉ๐ฎ๐ซ๐ฉ๐จ๐ฌ๐๐ฌ ๐จ๐ง๐ฅ๐ฒ ๐๐ง๐ ๐ฌ๐ก๐จ๐ฎ๐ฅ๐ ๐ง๐จ๐ญ ๐๐ ๐๐จ๐ง๐ฌ๐ญ๐ซ๐ฎ๐๐ ๐๐ฌ ๐ข๐ง๐ฏ๐๐ฌ๐ญ๐ฆ๐๐ง๐ญ ๐๐๐ฏ๐ข๐๐ ๐ญ๐จ ๐ฆ๐๐๐ญ ๐ญ๐ก๐ ๐ฌ๐ฉ๐๐๐ข๐๐ข๐ ๐ง๐๐๐๐ฌ ๐จ๐ ๐๐ง๐ฒ ๐ข๐ง๐๐ข๐ฏ๐ข๐๐ฎ๐๐ฅ ๐จ๐ซ ๐ฌ๐ข๐ญ๐ฎ๐๐ญ๐ข๐จ๐ง. ๐๐๐ฌ๐ญ ๐ฉ๐๐ซ๐๐จ๐ซ๐ฆ๐๐ง๐๐ ๐ข๐ฌ ๐ง๐จ ๐ ๐ฎ๐๐ซ๐๐ง๐ญ๐๐ ๐จ๐ ๐๐ฎ๐ญ๐ฎ๐ซ๐ ๐ซ๐๐ฌ๐ฎ๐ฅ๐ญ๐ฌ.
๐๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง ๐๐จ๐ง๐ญ๐๐ข๐ง๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๐๐ญ ๐ก๐๐ฌ ๐๐๐๐ง ๐จ๐๐ญ๐๐ข๐ง๐๏ฟฝ[...]
Microsoft $MSFT Q3 2025 Report ๐๏ธ
โ Rev: $70.06B vs $68.42B est | +13% YoY
โ EPS: $3.46 vs $3.22 est | +18% YoY
โ๏ธ Cloud Revenue $26.75B | +21% YoY https://t.co/hlRyDu1QK9
A quality valuation analysis on $MSFT ๐ง๐ฝโโ๏ธ
โขNTM P/E Ratio: 28.38x
โข5-Year Mean: 30.91x
โขNTM FCF Yield: 2.58%
โข5-Year Mean: 2.92%
As you can see, $MSFT appears to be trading near fair value
Going forward, investors can expect to receive ~9% MORE in earnings per share & ~12% LESS in FCF per share๐ง ***
Before we get into valuation, letโs take a look at why $MSFT is a quality business
BALANCE SHEETโ
โขCash & Equivalents: $71.56B
โขLong-Term Debt: $39.72B
$MSFT has an excellent balance sheet, an AAA S&P Credit Rating & 46x FFO Interest Coverage Ratio
RETURN ON CAPITALโ
โข2020: 26.4%
โข2021: 31.1%
โข2022: 34.0%
โข2023: 31.0%
โข2024: 29.7%
โขLTM: 28.8%
RETURN ON EQUITYโ
โข2020: 40.1%
โข2021: 47.1%
โข2022: 47.2%
โข2023: 38.8%
โข2024: 37.1%
โขLTM: 34.3%
$MSFT has great return metrics, highlighting the financial efficiency of the business
REVENUESโ
โข2014: $86.83B
โข2024: $245.12B
โขCAGR: 10.93%
FREE CASH FLOWโ
โข2014: $27.02B
โข2024: $74.07B
โขCAGR: 10.61%
NORMALIZED EPSโ
โข2014: $2.63
โข2024: $11.80
โขCAGR: 16.19%
SHARE BUYBACKSโ
โข2014 Shares Outstanding: 8.40B
โขLTM Shares Outstanding: 7.47B
By reducing its shares outstanding ~11%, $MSFT increased its EPS by ~12% (assuming 0 growth)
MARGINSโ
โขLTM Gross Margins: 69.4%
โขLTM Operating Margins: 45.0%
โขLTM Net Income Margins: 35.4%
PAID DIVIDENDSโ
โข2014: $1.12
โข2024: $3.00
โขCAGR: 10.35%
***NOW TO VALUATION ๐ง
As stated above, investors can expect to receive ~9% MORE in EPS & ~12% LESS in FCF per share
Using Benjamin Grahamโs 2G rule of thumb, $MSFT has to grow earnings at a 14.19% CAGR over the next several years to justify its valuation
Today, analysts anticipate 2025 - 2027 EPS growth over the next few years to be slightly less than the (14.19%) required growth rate:
2025E: $13.16 (11.5% YoY) *FY Jun
2026E: $14.95 (13.6% YoY)
2027E: $17.51 (17.1% YoY)
$MSFT has a decent track record of meeting analyst estimates ~2 years out, but letโs assume $MSFT ends 2027 with $17.51 in EPS & see its CAGR potential assuming different multiples
32x P/E: $560.32๐ต โฆ ~18.5% CAGR
30x P/E: $525.30๐ต โฆ ~15.1% CAGR
29x P/E: $507.79๐ต โฆ ~13.3% CAGR
28x P/E: $490.28๐ต โฆ ~11.5% CAGR
27x P/E: $472.77๐ต โฆ ~9.7% CAGR
As you can see, weโd have to assume a 28x multiple for $MSFT to have attractive return potential
At 27x earnings $MSFT has ok CAGR potential
$MSFT is one of the highest quality companies in the world & is firing on all cylinders
Although I wouldnโt want to rely on a >30x multiple, I feel comfortable accumulating $MSFT shares at ~$390๐ต while relying on 28x - 29x
I consider $MSFT a steal with a large margin of safety at $350๐ต, where I can reasonably expect 11.7% CAGR while assuming a conservative 25x
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๐๐๐๐๐๐๐๐๐๐โผ๏ธ: ๐๐ก๐ข๐ฌ ๐ข๐ฌ ๐๐๐ ๐๐ง๐ฏ๐๐ฌ๐ญ๐ฆ๐๐ง๐ญ ๐๐๐ฏ๐ข๐๐. ๐๐๐๐ฒ๐ฅ๐จ๐ง ๐๐๐ฉ๐ข๐ญ๐๐ฅยฎ ๐๐ง๐ ๐ข๐ญ๐ฌ ๐ซ๐๐ฉ๐ซ๐๐ฌ๐๐ง๐ญ๐๐ญ๐ข๐ฏ๐๐ฌ ๐ฆ๐๐ฒ ๐ก๐๐ฏ๐ ๐ฉ๐จ๐ฌ๐ข๐ญ๐ข๐จ๐ง๐ฌ ๐ข๐ง ๐ญ๐ก๐ ๐ฌ๐๐๐ฎ๐ซ๐ข๐ญ๐ข๐๐ฌ ๐๐ข๐ฌ๐๐ฎ๐ฌ๐ฌ๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๐๐ญ.
๐๐ก๐ ๐ข๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง ๐๐จ๐ง๐ญ๐๐ข๐ง๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๐๐ญ ๐ข๐ฌ ๐ข๐ง๐ญ๐๐ง๐๐๐ ๐๐จ๐ซ ๐ข๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง๐๐ฅ ๐ฉ๐ฎ๐ซ๐ฉ๐จ๐ฌ๐๐ฌ ๐จ๐ง๐ฅ๐ฒ ๐๐ง๐ ๐ฌ๐ก๐จ๐ฎ๐ฅ๐ ๐ง๐จ๐ญ ๐๐ ๐๐จ๐ง๐ฌ๐ญ๐ซ๐ฎ๐๐ ๐๐ฌ ๐ข๐ง๐ฏ๐๐ฌ๐ญ๐ฆ๐๐ง๐ญ ๐๐๐ฏ๐ข๐๐ ๐ญ๐จ ๐ฆ๐๐๐ญ ๐ญ๐ก๐ ๐ฌ๐ฉ๐๐๐ข๐๐ข๐ ๐ง๐๐๐๐ฌ ๐จ๐ ๐๐ง๐ฒ ๐ข๐ง๐๐ข๐ฏ๐ข๐๐ฎ๐๐ฅ ๐จ๐ซ ๐ฌ๐ข๐ญ๐ฎ๐๐ญ๐ข๐จ๐ง. ๐๐๐ฌ๐ญ ๐ฉ๐๐ซ๐๐จ๐ซ๐ฆ๐๐ง๐๐ ๐ข๐ฌ ๐ง๐จ ๐ ๐ฎ๐๐ซ๐๐ง๐ญ๐๐ ๐จ๐ ๐๐ฎ๐ญ๐ฎ๐ซ๐ ๐ซ๐๐ฌ๐ฎ๐ฅ๐ญ๐ฌ.
๐๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง ๐๐จ๐ง๐ญ๐๐ข๐ง๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๐๐ญ ๐ก๐๐ฌ ๐๐๐๐ง ๐จ๐๐ญ๐๐ข๐ง๐๏ฟฝ[...]