Microsoft corporation

MSFT Details

Decent Performance in Q2 FY21:  Microsoft Corporation (NASDAQ: MSFT) deals in varied technological solutions which is being used in both hardware and software. It has recently declared results for the second quarter ended Dec’2020, wherein it closed a top-line growth of ~17% on year-on-year basis owing to better- revenue growth in Intelligent Cloud business segment. With better revenue growth and lower operating expenses, the company is able to post better operating margins at 42% as compared to 38% in the previous year’s corresponding quarter. Net income for the quarter came in at $15.5 million, up 33% on a year over year basis.

Key Financial Metrics (Source: Company Reports)

Key Growth Strategies: The company is expected to post better growth in the top line with the growing demand for Intelligent cloud business in the coming quarter. This segment is also the second highest in operating margins across all the three businesses. So, this can lead to better operating margins as well in the near term. The company has already made a capex of $10.9 billion until six months ended Dec’2020 compared to $ 9.3 billion in the corresponding period.

Outlook: For the third quarter, the company expects 2 points to increase in revenue with most of the growth from cloud intelligent business. It is also likely to see an increase in a cost of goods sold and operating expenses in the third quarter of this fiscal.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Month

Stock Recommendation: Over the last three months, the stock moved up by ~14.16%. The stock made a 52-week low and high of $132.52 and $242.62, respectively, and is currently trading above the average of its 52-week trading range. On the technical analysis front, the stock has a support level of ~$213.5 and a resistance level of ~$242.03 We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price with an upside of low double digit (in percentage terms). We have taken peers like Alphabet Inc (NASDAQ: GOOGL), Apple Inc (NASDAQ: AAPL), to name few.  Considering the fundamentals with a decent outlook in the long-run, valuation, growth in Intelligent Cloud business segment and current trading levels, we give a “Hold” recommendation on the stock at the closing price of $231.96, down by 2.92% as on 29 January 2021.

MSFT Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

General Motors Company

GM Details

Q3FY20 Financial Highlights: General Motor corporation (NYSE: GM) is one of the world’s largest automobile manufacturers. It majorly caters to the three regions, mainly North America, Asia Pacific, and South America. In North America, it caters to the USA market while in the Asia Pacific its primary market is China and Brazil it’s South America. The company has announced Q3 results in which they reported flat growth in topline on Year-on-year basis. This is due to the lesser deliveries of vehicle, which has gone down by 3% to 1793,000 units on year-on-year basis. The company has lost its market share by 10 basis points to 10.6% owing to lesser delivery from Brazilian markets. On the flip side company could post strong adjusted EBDITA driven predominantly by strong SUV sales and improved performance of trucks.

Key Financial Metrics (Source: Company Reports) 

Outlook: GM is making a huge investment in electric vehicle in the near-term. It will also be pioneer in setting up electric vehicle factories using wireless battery management systems as per the company announcement made in the third quarter results. GM also expects to repay debt and try to be making a cost saving target of $ 4-$4.5 billion by the end of this year.

Stock Recommendation: Over the last one month, the stock moved up by ~21.1%. The stock made a 52-week low and high of $14.32and $56.97, respectively, and is currently trading above the average of its 52-weeks’ trading range. On the technical analysis front, the stock has a support level of ~$48.52 and a resistance level of ~$586.83. On the valuation front, the stock is trading at an EV/Sales multiple of 1.3x as compared to the industry median of 1.5x on TTM (Trailing Twelve Months) basis. Considering the current trading level, decent outlook, higher investments in electric vehicle, and improved performance of trucks, we give a “Hold” recommendation on the stock at the closing price of $50.68, down by 0.71% as on 29 January 2021.

GM Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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