Image Source: UnsplashAs part of a new series, each week we typically conduct a DCF on one of the companies in our screens. This week we thought we’d take a look at one of the stocks that is not currently on our screens, Microsoft Corp (MSFT).
ProfileMicrosoft 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 equally sized broad 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).
Recent PerformanceOver the past twelve months, the share price is down 17.92%.
Source: Google FinanceInputs
Forecasted Free Cash Flows (FCFs)
Terminal ValueTerminal Value = FCF * (1 + g) / (r – g) = 3422.38 billionPresent Value of Terminal ValuePV of Terminal Value = Terminal Value / (1 + WACC)^5 = 2329.21 billionPresent Value of Free Cash FlowsPresent Value of FCFs = ∑ (FCF / (1 + r)^n) = 397.50 billionEnterprise ValueEnterprise Value = Present Value of FCFs + Present Value of Terminal Value = 2726.71 billionNet DebtNet Debt = Total Debt – Total Cash = 66.22 billionEquity ValueEquity Value = Enterprise Value – Net Debt = 2660.49 billionPer-Share DCF ValuePer-Share DCF Value = Enterprise Value / Number of Shares Outstanding = $356.20Conclusion
Based on the DCF valuation, the stock is overvalued. The DCF value of $356.20 per share is lower than the current market price of $437.03. The Margin of Safety is -22.69%.More By This Author:10 Worst Performing Large-Caps Last 12 MonthsCHTR: The One Stock That Superinvestors Are Dumping: Is It Time To Sell? The Risks Of Shorting MSTR And Long Bitcoin
