May 5, 2019

NASDAQ: MSFT

MICROSOFT CORP
BUY HOLD SELL

BUY
RATING SINCE 04/27/2018
A+ A A- B+ B B- C+ C C- D+ D D- E+ E E- F TARGET PRICE $148.58

Annual Dividend Rate Annual Dividend Yield Beta Market Capitalization 52-Week Range Price as of 5/2/2019
$1.84 1.45% 1.23 $967.1 Billion $92.45-$131.37 $126.21

Sector: Technology Sub-Industry: Systems Software Source: S&P

Weekly Price: (US$) SMA (50) SMA (100) 1 Year 2 Years
MSFT BUSINESS DESCRIPTION
Microsoft Corporation develops, licenses, and 150
TARGET
TARGET
TARGETPRICE
TARGET PRICE
PRICE$148.58
$148.58
$148.58
supports software, services, devices, and solutions 140
worldwide.
130
STOCK PERFORMANCE (%) 120
3 Mo. 1 Yr. 3 Yr (Ann) 110
Price Change 22.79 34.96 35.61
100
GROWTH (%) 90
Last Qtr 12 Mo. 3 Yr CAGR
80
Revenues 13.99 15.42 12.04
Net Income 18.65 121.51 49.36 70
EPS 20.00 125.00 51.27 60
Rating History
RETURN ON EQUITY (%) BUY HOLD BUY
MSFT Ind Avg S&P 500
Volume in Millions
Q3 2019 36.81 28.58 15.83 400
Q3 2018 19.89 16.36 13.34
Q3 2017 29.45 16.22 12.81 200

0
P/E COMPARISON 2017 2018 2019
COMPUSTAT for Price and Volume, TheStreet Ratings, Inc. for Rating History

RECOMMENDATION
We rate MICROSOFT CORP (MSFT) a BUY. This is based on the convergence of positive investment measures,
which should help this stock outperform the majority of stocks that we rate. The company's strengths can be
seen in multiple areas, such as its revenue growth, solid stock price performance, notable return on equity,
reasonable valuation levels and expanding profit margins. Although no company is perfect, currently we do
not see any significant weaknesses which are likely to detract from the generally positive outlook.
28.05 55.51 22.04
MSFT Ind Avg S&P 500 HIGHLIGHTS
MSFT's revenue growth has slightly outpaced the industry average of 13.3%. Since the same quarter one year
prior, revenues rose by 14.0%. Growth in the company's revenue appears to have helped boost the earnings
EPS ANALYSIS¹ ($) per share.

Investors have apparently begun to recognize positive factors similar to those we have mentioned in this
report, including earnings growth. This has helped drive up the company's shares by a sharp 34.96% over the
Q1 0.72
Q2 0.80

Q4 1.03

Q1 0.84

Q3 0.95
Q4 1.14

Q1 1.14
Q2 1.08
Q3 1.14

past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although
almost any stock can fall in a broad market decline, MSFT should continue to move higher despite the fact
Q3 0.70

Q2 -0.82

that it has already enjoyed a very nice gain in the past year.

The company's current return on equity greatly increased when compared to its ROE from the same quarter
one year prior. This is a signal of significant strength within the corporation. When compared to other
2017 2018 2019 companies in the Software industry and the overall market, MICROSOFT CORP's return on equity exceeds that
NA = not available NM = not meaningful
of the industry average and significantly exceeds that of the S&P 500.
1 Compustat fiscal year convention is used for all fundamental
data items. The gross profit margin for MICROSOFT CORP is currently very high, coming in at 76.30%. It has increased
from the same quarter the previous year. Along with this, the net profit margin of 28.81% is above that of the
industry average.

This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither TheStreet Ratings nor any other party guarantees its accuracy Report Date: May 5, 2019 PAGE 1
or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of TheStreet Ratings. Copyright(c) 2006-2019. All rights reserved.
 May 5, 2019
NASDAQ: MSFT

MICROSOFT CORP
Sector: Technology Systems Software Source: S&P
Annual Dividend Rate Annual Dividend Yield Beta Market Capitalization 52-Week Range Price as of 5/2/2019
$1.84 1.45% 1.23 $967.1 Billion $92.45-$131.37 $126.21

PEER GROUP ANALYSIS INDUSTRY ANALYSIS

REVENUE GROWTH AND EBITDA MARGIN*
The US software industry is characterized by growth, innovation and technological advancements. The
business remains knowledge intensive and market structure is influenced by ownership of intellectual
40%

property. Technology and product innovation shape business models in a rapidly changing environment. The
PFPT NOW
FA

industry can be divided into three main categories: systems software, programming software, and application
VO

DATA software.
RA

PANW
BL
E

The industry landscape has seen radical change in recent years due to the growth of mass markets for
packaged software. Software development has witnessed rapid evolution over the past few decades with
projects increasing in size and complexity as the available computer hardware has dramatically improved in
both processing speed and storage size.
MSFT
Revenue Growth (TTM)

RHT VMW The number of patents being issued across the industry has recently surged. Ownership of intellectual
property is a key driver of growth and the patent system plays a vital role in the development of the industry.
UN
FA

However, piracy remains a pressing issue as copyright infringement and illegal reproduction and transfer of
VO

licensed software is widespread.

RA
B
0%

CHKP
LE

-10% SYMC ORCL 50% The software industry is not immune to the global economy. The return to positive slow growth will positively
EBITDA Margin (TTM) impact all industries and enhance new investments, which could bolster demand for services and add to
Companies with higher EBITDA margins and sales growth in the upcoming quarters. The need to lower costs has triggered global capabilities to evolve in
revenue growth rates are outperforming companies China and India. India, for instance, has emerged as the number two software talent pool worldwide,
with lower EBITDA margins and revenue growth capturing more than a quarter of the global outsourcing market. The industry is currently positioned favorably
rates. Companies for this scatter plot have a market going forward.
capitalization between $6.8 Billion and $967.1 Billion.
Companies with NA or NM values do not appear. PEER GROUP: Software
*EBITDA – Earnings Before Interest, Taxes, Depreciation and Recent Market Price/ Net Sales Net Income
Amortization.
Ticker Company Name Price ($) Cap ($M) Earnings TTM ($M) TTM ($M)
REVENUE GROWTH AND EARNINGS YIELD MSFT MICROSOFT CORP 126.21 967,124 28.05 122,211.00 34,926.00
DATA TABLEAU SOFTWARE INC 120.26 9,115 NM 1,155.35 -77.04
40%

PFPT PROOFPOINT INC 122.69 6,826 NM 757.47 -119.87

PFPT NOW
FA

NOW SERVICENOW INC 262.67 48,729 NM 2,808.52 -38.87

VO

DATA
RA

PANW RHT RED HAT INC 182.41 32,424 78.97 3,362.07 433.99
BL

PANW PALO ALTO NETWORKS INC 246.73 23,557 NM 2,592.40 -89.90

E

VMW VMWARE INC 200.00 22,088 34.07 8,974.00 2,422.00

ORCL ORACLE CORP 54.60 186,604 19.78 39,621.00 10,750.00
FTNT
CHKP CHECK POINT SOFTWARE TECHN 118.59 18,427 23.03 1,935.98 814.10
Revenue Growth (TTM)

MSFT FTNT FORTINET INC 91.51 16,266 45.98 1,874.80 349.40

RHT
VMW SYMC SYMANTEC CORP 23.35 14,926 NM 4,752.00 -62.00
UN

The peer group comparison is based on Major Systems Software companies of comparable size.
FA
VO
RA
B
0%

CHKP
LE

ORCL
-2% SYMC 6%
Earnings Yield (TTM)
Companies that exhibit both a high earnings yield
and high revenue growth are generally more
attractive than companies with low revenue growth
and low earnings yield. Companies for this scatter
plot have revenue growth rates between 0.3% and
35.1%. Companies with NA or NM values do not
appear.

This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither TheStreet Ratings nor any other party guarantees its accuracy Report Date: May 5, 2019 PAGE 2
or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of TheStreet Ratings. Copyright(c) 2006-2019. All rights reserved.
 May 5, 2019
NASDAQ: MSFT

MICROSOFT CORP
Sector: Technology Systems Software Source: S&P
Annual Dividend Rate Annual Dividend Yield Beta Market Capitalization 52-Week Range Price as of 5/2/2019
$1.84 1.45% 1.23 $967.1 Billion $92.45-$131.37 $126.21

COMPANY DESCRIPTION STOCK-AT-A-GLANCE

Microsoft Corporation develops, licenses, and supports Below is a summary of the major fundamental and technical factors we consider when determining our
software, services, devices, and solutions worldwide. Its overall recommendation of MSFT shares. It is provided in order to give you a deeper understanding of our
company's Productivity and Business Processes segment rating methodology as well as to paint a more complete picture of a stock's strengths and weaknesses. It is
offers Office 365 commercial products and services, such important to note, however, that these factors only tell part of the story. To gain an even more comprehensive
as Office, Exchange, SharePoint, Skype for Business, understanding of our stance on the stock, these factors must be assessed in combination with the stock’s
Microsoft Teams, and related Client Access Licenses valuation. Please refer to our Valuation section on page 5 for further information.
(CALs); Office 365 consumer services, including Skype,
Outlook.com, and OneDrive; LinkedIn online professional FACTOR SCORE
network; and Dynamics business solutions comprising
financial management, enterprise resource planning, Growth out of 5 stars 5.0
customer relationship management, supply chain Measures the growth of both the company's income statement and weak strong
management, and analytics applications for small and cash flow. On this factor, MSFT has a growth score better than 90% of
medium businesses, large organizations, and divisions of the stocks we rate.
enterprises. The company's Intelligent Cloud segment
licenses server products and cloud services, such as SQL
Server, Windows Server, Visual Studio, System Center,
Total Return out of 5 stars 5.0
and related CALs, as well as Azure, a cloud platform; and Measures the historical price movement of the stock. The stock weak strong
enterprise services, including premier support and performance of this company has beaten 90% of the companies we
Microsoft consulting services to assist customers in cover.
developing, deploying, and managing Microsoft server
and desktop solutions, as well as provides training and Efficiency out of 5 stars 5.0
certification to developers and IT professionals. Its More Measures the strength and historic growth of a company's return on weak strong
Personal Computing segment offers Windows OEM, invested capital. The company has generated more income per dollar of
volume, and other non-volume licensing of the Windows capital than 90% of the companies we review.
operating system; patent licensing, Windows Internet of
Things, and MSN display advertising; devices comprising
Surface, PC accessories, and other intelligent devices;
Price volatility out of 5 stars 5.0
Xbox hardware and software and services; and Bing and Measures the volatility of the company's stock price historically. The weak strong
Bing Ads search advertising. It markets its products stock is less volatile than 90% of the stocks we monitor.
through original equipment manufacturers, distributors,
and resellers; and online and Microsoft retail stores. Solvency out of 5 stars 5.0
Microsoft Corporation has collaboration with E.ON, NIIT Measures the solvency of the company based on several ratios. The weak strong
Technologies Ltd., and CUNA Mutual Group; strategic company is more solvent than 90% of the companies we analyze.
alliance with Nielsen Holdings plc and PAREXEL
International Corp.; and a strategic collaboration with Income out of 5 stars 3.5
Mastercard Incorporated. The company was founded in
Measures dividend yield and payouts to shareholders. The company's weak strong
1975 and is headquartered in Redmond, Washington.
dividend is higher than 60% of the companies we track.
MICROSOFT CORP
One Microsoft Way THESTREET RATINGS RESEARCH METHODOLOGY
Redmond, WA 98052
USA TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both
Phone: 425-882-8080 price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to
Fax: 425-706-7329 perform against a general benchmark of the equities market and interest rates. While our model is
http://www.microsoft.com quantitative, it utilizes both subjective and objective elements. For instance, subjective elements include
expected equities market returns, future interest rates, implied industry outlook and forecasted company
earnings. Objective elements include volatility of past operating revenues, financial strength, and company
cash flows.

Our model gauges the relationship between risk and reward in several ways, including: the pricing drawdown
as compared to potential profit volatility, i.e.how much one is willing to risk in order to earn profits; the level of
acceptable volatility for highly performing stocks; the current valuation as compared to projected earnings
growth; and the financial strength of the underlying company as compared to its stock's valuation as
compared to projected earnings growth; and the financial strength of the underlying company as compared
to its stock's performance. These and many more derived observations are then combined, ranked, weighted,
and scenario-tested to create a more complete analysis. The result is a systematic and disciplined method of
selecting stocks.

This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither TheStreet Ratings nor any other party guarantees its accuracy Report Date: May 5, 2019 PAGE 3
or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of TheStreet Ratings. Copyright(c) 2006-2019. All rights reserved.
 May 5, 2019
NASDAQ: MSFT

MICROSOFT CORP
Sector: Technology Systems Software Source: S&P
Annual Dividend Rate Annual Dividend Yield Beta Market Capitalization 52-Week Range Price as of 5/2/2019
$1.84 1.45% 1.23 $967.1 Billion $92.45-$131.37 $126.21

Consensus EPS Estimates² ($) FINANCIAL ANALYSIS

IBES consensus estimates are provided by Thomson Financial
MICROSOFT CORP's gross profit margin for the third quarter of its fiscal year 2019 is essentially unchanged
when compared to the same period a year ago. Sales and net income have grown, and although the growth in
revenues has outpaced the average competitor within the industry, the net income growth has not.
MICROSOFT CORP is extremely liquid. Currently, the Quick Ratio is 2.80 which clearly shows the ability to
cover any short-term cash needs. The company's liquidity has decreased from the same period last year.

During the same period, stockholders' equity ("net worth") has increased by 19.71% from the same quarter last
year. Overall, the key liquidity measurements indicate that the company is very unlikely to face financial
1.21 4.58 E 5.07 E difficulties in the near future.
Q4 FY19 2019(E) 2020(E)
STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the
next 12-months. To learn more visit www.TheStreetRatings.com.
INCOME STATEMENT
Q3 FY19 Q3 FY18
Net Sales ($mil) 30,571.00 26,819.00
EBITDA ($mil) 13,267.00 11,002.00
EBIT ($mil) 10,341.00 8,292.00
Net Income ($mil) 8,809.00 7,424.00

BALANCE SHEET
Q3 FY19 Q3 FY18
Cash & Equiv. ($mil) 131,618.00 132,270.00
Total Assets ($mil) 263,281.00 245,497.00
Total Debt ($mil) 86,343.00 88,621.00
Equity ($mil) 94,864.00 79,239.00

PROFITABILITY
Q3 FY19 Q3 FY18
Gross Profit Margin 76.30% 75.54%
EBITDA Margin 43.39% 41.02%
Operating Margin 33.83% 30.92%
Sales Turnover 0.46 0.43
Return on Assets 13.26% 6.42%
Return on Equity 36.81% 19.89%

DEBT
Q3 FY19 Q3 FY18
Current Ratio 2.97 3.40
Debt/Capital 0.48 0.53
Interest Expense 671.00 691.00
Interest Coverage 15.41 12.00

SHARE DATA
Q3 FY19 Q3 FY18
Shares outstanding (mil) 7,666 7,690
Div / share 0.46 0.42
EPS 1.14 0.95
Book value / share 12.37 10.30
Institutional Own % NA NA
Avg Daily Volume 24,082,371 38,757,408
2 Sum of quarterly figures may not match annual estimates due to
use of median consensus estimates.

This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither TheStreet Ratings nor any other party guarantees its accuracy Report Date: May 5, 2019 PAGE 4
or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of TheStreet Ratings. Copyright(c) 2006-2019. All rights reserved.
 May 5, 2019
NASDAQ: MSFT

MICROSOFT CORP
Sector: Technology Systems Software Source: S&P
Annual Dividend Rate Annual Dividend Yield Beta Market Capitalization 52-Week Range Price as of 5/2/2019
$1.84 1.45% 1.23 $967.1 Billion $92.45-$131.37 $126.21

RATINGS HISTORY VALUATION

Our rating for MICROSOFT CORP has not changed BUY. This stock's P/E ratio indicates a significant discount compared to an average of 55.51 for the Software
since 4/27/2018. As of 5/2/2019, the stock was industry and a premium compared to the S&P 500 average of 22.04. To use another comparison, its
trading at a price of $126.21 which is 3.9% below its price-to-book ratio of 10.20 indicates a significant premium versus the S&P 500 average of 3.35 and a
52-week high of $131.37 and 36.5% above its significant discount versus the industry average of 13.32. The price-to-sales ratio is well above the S&P 500
52-week low of $92.45. average, but well below the industry average. Upon assessment of these and other key valuation criteria,
MICROSOFT CORP proves to trade at a discount to investment alternatives.
2 Year Chart
$140
BUY: $69.30

HOLD: $94.26

BUY: $95.82

Price/Earnings 1 2 3 4 5 Price/CashFlow 1 2 3 4 5
$120 premium discount premium discount
MSFT 28.05 Peers 55.51 MSFT 20.35 Peers 38.06
$100 • Discount. A lower P/E ratio than its peers can • Discount. The P/CF ratio, a stock’s price divided by
signify a less expensive stock or lower growth the company's cash flow from operations, is useful
$80 expectations. for comparing companies with different capital
• MSFT is trading at a significant discount to its requirements or financing structures.
2017 2018 peers. • MSFT is trading at a significant discount to its
peers.

MOST RECENT RATINGS CHANGES

Price/Projected Earnings 1 2 3 4 5 Price to Earnings/Growth 1 2 3 4 5
premium discount premium discount
Date Price Action From To MSFT 24.89 Peers 48.06 MSFT 0.24 Peers 0.69
4/27/18 $95.82 Upgrade Hold Buy • Discount. A lower price-to-projected earnings ratio • Discount. The PEG ratio is the stock’s P/E divided
2/1/18 $94.26 Downgrade Buy Hold than its peers can signify a less expensive stock or by the consensus estimate of long-term earnings
5/2/17 $69.30 No Change Buy Buy lower future growth expectations. growth. Faster growth can justify higher price
Price reflects the closing price as of the date listed, if available • MSFT is trading at a significant discount to its multiples.
peers. • MSFT trades at a significant discount to its peers.

RATINGS DEFINITIONS & Price/Book 1 2 3 4 5 Earnings Growth 1 2 3 4 5

premium discount lower higher
DISTRIBUTION OF THESTREET RATINGS
MSFT 10.20 Peers 13.32 MSFT 125.00 Peers 115.47
(as of 5/2/2019)
• Discount. A lower price-to-book ratio makes a • Average. Elevated earnings growth rates can lead
42.56% Buy - We believe that this stock has the stock more attractive to investors seeking stocks to capital appreciation and justify higher
opportunity to appreciate and produce a total return of with lower market values per dollar of equity on the price-to-earnings ratios.
more than 10% over the next 12 months. balance sheet. • MSFT is expected to keep pace with its peers on
• MSFT is trading at a discount to its peers. the basis of earnings growth.
31.87% Hold - We do not believe this stock offers
Price/Sales 1 2 3 4 5 Sales Growth 1 2 3 4 5
conclusive evidence to warrant the purchase or sale of premium discount lower higher
shares at this time and that its likelihood of positive total MSFT 7.92 Peers 10.28 MSFT 15.42 Peers 17.83
return is roughly in balance with the risk of loss.
• Discount. In the absence of P/E and P/B multiples, • Lower. A sales growth rate that trails the industry
the price-to-sales ratio can display the value implies that a company is losing market share.
25.57% Sell - We believe that this stock is likely to
decline by more than 10% over the next 12 months, with investors are placing on each dollar of sales. • MSFT trails its peers on the basis of sales growth.
the risk involved too great to compensate for any • MSFT is trading at a discount to its industry on this
possible returns. measurement.

DISCLAIMER:
TheStreet Ratings
14 Wall Street, 15th Floor The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but
TheStreet Ratings cannot guarantee its accuracy and completeness, and that of the opinions based thereon. Data is provided
New York, NY 10005 via the COMPUSTAT® Xpressfeed product from Standard &Poor's, a division of The McGraw-Hill Companies, Inc., as well as
www.thestreet.com other third-party data providers.
Research Contact: 212-321-5381
TheStreet Ratings is a division of TheStreet, Inc., which is a publisher. This research report contains opinions and is provided
Sales Contact: 866-321-8726 for informational purposes only. You should not rely solely upon the research herein for purposes of transacting securities or
other investments, and you are encouraged to conduct your own research and due diligence, and to seek the advice of a
qualified securities professional, before you make any investment. None of the information contained in this report constitutes,
or is intended to constitute a recommendation by TheStreet Ratings of any particular security or trading strategy or a
determination by TheStreet Ratings that any security or trading strategy is suitable for any specific person. To the extent any of
the information contained herein may be deemed to be investment advice, such information is impersonal and not tailored to the
investment needs of any specific person. Your use of this report is governed by TheStreet, Inc.'s Terms of Use found at
http://www.thestreet.com/static/about/terms-of-use.html.

This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither TheStreet Ratings nor any other party guarantees its accuracy Report Date: May 5, 2019 PAGE 5
or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of TheStreet Ratings. Copyright(c) 2006-2019. All rights reserved.