Microsoft Stock Price Forecast September 2021 – Time to Buy MSFT Stock?

With a year-to-date (YTD) gain of 37.7%, Microsoft (MSFT) is outperforming the markets by a wide margin this year. Notably, this year there has been a lot of dispersion in the returns of Big Tech companies.

While companies like Amazon and Apple have been out of favor with markets, names like Facebook, Alphabet, and Microsoft have outperformed. Microsoft is now the second-largest company with a market cap of $2.25 trillion. What’s the forecast for MSFT stock and can it continue its good run in the coming months?

Microsoft stock recent developments

Microsoft has unveiled a new repurchase program and intends to buy back up to $60 billion of its shares. While the earnings of US tech companies have increased over the last year, they don’t have ample growth opportunities. In the absence of organic and inorganic growth prospects, companies have been returning cash to shareholders.

MSFT’s new share repurchase plan does not have an expiration date and can be terminated at any time. The company also increased its quarterly dividend by 11% to $0.62. Based on the current stock price, this gives us an annual dividend yield of 0.83%. The yield is only about half of the S&P 500’s dividend yield. But then, US tech companies are generally frugal with dividends and instead use their mammoth cash flows to repurchase shares.

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Share buybacks

Share buybacks help companies inflate their earnings per share. Everything else held constant, share buybacks lower the outstanding shares which increase the EPS. While this process is primarily denominator management, in absence of attractive opportunities, buybacks are the best ways to manage cash.

Even Berkshire Hathaway chairman and legendary value investor Warren Buffett has scaled up buybacks over the last year. Buffett hasn’t been able to identify good investment opportunities even as the company continues to generate billions of dollars of cash every quarter.

Microsoft announces new vice-chair

Microsoft also announced leadership changes and named Brad Smith as the vice-chairman. Smith was serving as the chief legal officer and would continue to report to Satya Nadella. Notably, Smith would be the vice-chair of the company but not the board and would not even join the board. Commenting on Smith’s new role, Nadella said “This reflects the unique leadership role that Brad plays for the company, our board of directors and me, with governments and other external stakeholders around the world.”

Microsoft stock forecast

Most Wall Street analysts are bullish on Microsoft stock. Of the 38 analysts covering the stock, 34 rate them as a buy or some equivalent while the remaining four analysts rate it as a hold. None of the analyst rates MSFT stock as a sell.

Its median target price of $330 implies a 10% upside over the current levels. The stock’s street high target price of $411 is a premium of 37% while the street low target price of $275 is a discount of 8.3%.

MSFT stock analyst ratings

Yesterday, Morgan Stanley raised MSFT’s target price from $305 to $331, saying that it finds the risk-reward attractive. “Dividend increases have historically been announced in mid-September; we see potential for a 10%+ increase pushing the dividend yield to ~0.8%. Combined with high-teens EPS growth, this supports an ~20% total return profile at MSFT, framing an attractive risk/reward,” it said in its note.

Last month, Microsoft had raised the prices for Microsoft 365 products. Mizuho had raised the target price from $325 to $350 and said that the price increase will have a significant impact. “While it will take time to filter through the model, we expect these actions will have a significant financial impact in FY23 and beyond,” it said in its note.

MSFT stock long term forecast

MSFT is among the beneficiaries of the digital transformation. Sales of personal computers, which have been sagging for years, have been on an uptrend. This bodes well for companies like Microsoft. Also, the company has been working on high-growth and emerging industries like AI and cloud under Nadella. These initiatives would pay off handsomely in the medium to long term.

Analysts expect the company’s sales to rise 13.9% in the fiscal year 2022 and another 12.7% in the fiscal year 2023.

Microsoft stock valuation

Like many of its tech peers, Microsoft has also seen a valuation rerating over the years. In fact, the company’s valuation multiples have expanded significantly under Nadella’s leadership as he has positioned the company as a tech and software company by pivoting towards high-growth industries.

MSFT stock now trades at an NTM (next-12 months) PE of 34.10x. The multiples have averaged 26.7x over the last five years and 20.4x over the last 10 years. The valuation premium is reflective of the changed perception of the company.

Microsoft stock is looking bullish on the charts also and trades above the 50-day, 100-day, and 200-day SMA (simple moving average). The 14-day RSI (relative strength index) of 57.9x is a neutral indicator.

Overall, despite the recent spike in MSFT stock, it still looks among the best ways to play the digital transformation. The stock should continue to deliver strong returns in the medium to long term as it expands into emerging high-growth industries.

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