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Globe and Mail
4 days ago
- Business
- Globe and Mail
Should You Hold on to MSFT Stock in 2025 Beyond its 9% YTD Growth?
Microsoft 's MSFT solid 9.2% year-to-date (YTD) return has left many investors questioning whether the tech giant remains attractively valued or if a better entry opportunity lies ahead. With the company reporting record quarterly results and accelerating its artificial intelligence (AI) initiatives, the investment thesis presents both compelling growth drivers and legitimate valuation concerns for the second half of 2025. Strong Financial Foundation Supports Current Valuation Microsoft's fiscal third-quarter 2025 results demonstrated remarkable resilience across its core business segments. The company achieved $70.1 billion in quarterly revenues, representing 13% growth, while Microsoft Cloud revenues reached $42.4 billion with 22% constant currency growth. This performance was particularly impressive given the challenging macroeconomic environment and increased competition in cloud services. The Intelligent Cloud segment, which includes Azure, generated $26.8 billion in revenues with 21% growth. Azure's 33% growth rate, including a substantial 16-percentage-point contribution from AI services, underscores the company's successful positioning in the artificial intelligence revolution. The strong commercial bookings of 18% growth and a record $315 billion in remaining performance obligations provide visibility into future revenue streams. Free cash flow of $20.3 billion in the quarter reflects Microsoft's ability to convert growth into shareholder value, while the company's diversified revenue base across productivity, cloud, and consumer segments offers defensive characteristics during economic uncertainty. The Zacks Consensus Estimate for Microsoft's fiscal 2025 revenues is pegged at $278.8 billion, suggesting 13.47% year-over-year growth. The consensus mark for earnings is pegged at $13.33 per share, indicating a 12.97% year-over-year increase. Find the latest EPS estimates and surprises on Zacks Earnings Calendar. AI Innovation Driving Long-Term Growth Prospects Recent product launches signal Microsoft's commitment to maintaining its competitive edge in artificial intelligence. The introduction of the Agent Store in May 2025 creates a new marketplace for AI-powered workplace assistants, potentially opening additional revenue streams beyond traditional software licensing. The platform already features more than 70 agents and provides developers with monetization opportunities through Microsoft 365 Copilot integration. Microsoft's gaming initiatives, including the worldwide rollout of Edge Game Assist, demonstrate the company's ability to leverage AI across diverse user experiences. The in-game browser represents a strategic move to capture more user engagement time and data, potentially supporting future advertising revenue growth. The company's NLWeb project, designed to transform websites into AI-powered applications, positions Microsoft as an enabler of the broader AI ecosystem. This open-source approach could drive adoption of Microsoft's underlying AI infrastructure while creating network effects that benefit the Azure platform. Microsoft will invest $400 million in Switzerland, with the money going toward developing its cloud computing and AI infrastructure. Capacity Constraints Present Near-Term Headwinds Despite strong demand signals, Microsoft faces AI capacity constraints that may limit growth acceleration in the near term. Management indicated expectations for some AI capacity limitations beyond June 2025, suggesting that revenue growth could be supply-constrained rather than demand-limited. This dynamic, while validating the company's market position, may create temporary growth headwinds. The substantial capital expenditure requirements, including a recent $400 million investment in Switzerland's AI and cloud infrastructure, reflect the ongoing need for significant infrastructure spending. While these investments support long-term competitive positioning, they pressure near-term margins and free cash flow conversion rates. Valuation Considerations for Entry in the Second Half of 2025 Microsoft's current valuation reflects optimistic expectations for AI monetization and cloud market share gains. The 9.2% year-to-date (YTD) appreciation has occurred alongside broader technology sector strength, potentially limiting the margin of safety for new investors. Forward price-to-earnings ratios remain elevated relative to historical averages, though justified by the company's market-leading positions and growth prospects. The stock's current valuation of 11.2 times forward sales appears to fully account for near-term growth potential, exceeding the Zacks Computer - Software industry average of 9.8 times. MSFT's P/S F12M Ratio Depicts Stretched Valuation The stock's sensitivity to interest rate movements and technology sector sentiment could create more attractive entry points during the second half of 2025. Potential catalysts for volatility include quarterly earnings surprises, changes in AI spending patterns among enterprise customers, or shifts in competitive dynamics with cloud rivals. Microsoft also faces significant competitive pressure in the AI space from tech giants, including Alphabet 's GOOGL Google, Nvidia NVDA and Amazon AMZN. Microsoft has outperformed the Zacks Computer & Technology sector and its competitors in the year-to-date period. While shares of Google and Amazon have lost 9.3% and 6.6%, respectively, Nvidia has returned 0.6% in the same time frame. Year-to-Date Performance Investment Recommendation: Hold With Tactical Patience Current shareholders should maintain their positions given Microsoft's strong competitive moats, diversified revenue streams, and leadership in high-growth AI markets. The company's ability to generate substantial free cash flow while investing in future growth platforms supports long-term wealth creation. However, prospective investors may benefit from patience, waiting for potential pullbacks in the second half of 2025 before establishing new positions. The combination of elevated valuations, capacity constraints, and broader market volatility suggests better entry opportunities may emerge during earnings-driven corrections or macroeconomic uncertainty. Microsoft's fundamental outlook remains robust, but tactical timing could significantly impact investment returns for those not yet holding the stock. Microsoft currently carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here. Zacks Names #1 Semiconductor Stock It's only 1/9,000th the size of NVIDIA which skyrocketed more than +800% since we recommended it. NVIDIA is still strong, but our new top chip stock has much more room to boom. With strong earnings growth and an expanding customer base, it's positioned to feed the rampant demand for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $803 billion by 2028. See This Stock Now for Free >> Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Inc. (AMZN): Free Stock Analysis Report Microsoft Corporation (MSFT): Free Stock Analysis Report NVIDIA Corporation (NVDA): Free Stock Analysis Report Alphabet Inc. (GOOGL): Free Stock Analysis Report
Yahoo
5 days ago
- Business
- Yahoo
Are Poor Financial Prospects Dragging Down Meridian Energy Limited (NZSE:MEL Stock?
Meridian Energy (NZSE:MEL) has had a rough three months with its share price down 6.9%. We decided to study the company's financials to determine if the downtrend will continue as the long-term performance of a company usually dictates market outcomes. Specifically, we decided to study Meridian Energy's ROE in this article. Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors' money. In short, ROE shows the profit each dollar generates with respect to its shareholder investments. This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality. Return on equity can be calculated by using the formula: Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity So, based on the above formula, the ROE for Meridian Energy is: 1.5% = NZ$117m ÷ NZ$7.8b (Based on the trailing twelve months to December 2024). The 'return' is the amount earned after tax over the last twelve months. That means that for every NZ$1 worth of shareholders' equity, the company generated NZ$0.01 in profit. View our latest analysis for Meridian Energy So far, we've learned that ROE is a measure of a company's profitability. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features. As you can see, Meridian Energy's ROE looks pretty weak. Even when compared to the industry average of 12%, the ROE figure is pretty disappointing. Given the circumstances, the significant decline in net income by 5.5% seen by Meridian Energy over the last five years is not surprising. We believe that there also might be other aspects that are negatively influencing the company's earnings prospects. Such as - low earnings retention or poor allocation of capital. Furthermore, even when compared to the industry, which has been shrinking its earnings at a rate of 0.9% over the last few years, we found that Meridian Energy's performance is pretty disappointing, as it suggests that the company has been shrunk its earnings at a rate faster than the industry. Earnings growth is a huge factor in stock valuation. It's important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Meridian Energy fairly valued compared to other companies? These 3 valuation measures might help you decide. Meridian Energy's very high three-year median payout ratio of 174% over the last three years suggests that the company is paying its shareholders more than what it is earning and this explains the company's shrinking earnings. Paying a dividend higher than reported profits is not a sustainable move. Additionally, Meridian Energy has paid dividends over a period of at least ten years, which means that the company's management is determined to pay dividends even if it means little to no earnings growth. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 148% of its profits over the next three years. Still, forecasts suggest that Meridian Energy's future ROE will rise to 6.6% even though the the company's payout ratio is not expected to change by much. In total, we would have a hard think before deciding on any investment action concerning Meridian Energy. Specifically, it has shown quite an unsatisfactory performance as far as earnings growth is concerned, and a poor ROE and an equally poor rate of reinvestment seem to be the reason behind this inadequate performance. With that said, we studied the latest analyst forecasts and found that while the company has shrunk its earnings in the past, analysts expect its earnings to grow in the future. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
RNZ News
28-05-2025
- Business
- RNZ News
Infratil eyes sale of $1b in assets as it targets stronger growth
Infratil chief executive Jason Boyes Photo: Supplied Infratil is looking to sell about a billion dollars of assets over the next two to three years as part of a strategy to create more shareholder value. "We're much bigger now than we used to be and so we've taken a look at our strategy," Infratil chief executive Jason Boyes said, following the release of its full year result . He said all business units needed to fit with the growth strategy, which included CDC Data Centres, One NZ, Wellington Airport, RetireAustralia and healthcare assets. "Every business really has to contribute, and if they can't scale in our ownership . . . then we're better to find a better owner for them and move on, and move that capital into things that can meaningfully contribute in the long term." He said no decisions had been made about what was up for sale, though the retirement business was one asset it had considered selling in the past. "So that would definitely be one that we would not see being in the portfolio over the long term." He said Wellington Airport still had growth potential. "I think there are actually ways to scale our exposure to airports, which are interesting, but it has to, over time meet the same requirements as every other business which is it needs to be big enough to contribute meaningfully, as we hopefully continue to grow." Healthcare services were also showing growth potential, with advances in technology. "A niche sub-sector of radiology is growing really fast globally and could be a way for those businesses to scale in the portfolio and remain interesting and relevant for shareholders." Boyes said the proceeds of any sale would likely support growth in renewable energy. "Our investment in renewable energy in Southeast Asia and Singapore - that is a business that could take a good chunk of that billion dollars . . . particularly with a big project they're working on there with the help of the Singapore government. "So that's one place (further investment) could go, but we always look around for the next theme that we want to be exposed to as early as we can." One of the theme areas Infratil was looking at was advanced logistics, such as robots and warehouses dispensing pharmaceuticals or other items. "A very interesting infrastructure-like asset that doesn't currently exist today. I wouldn't be surprised to see that turn up at some point, or an idea like that," Boyes said. "I think that's the best way to think about the portfolio is how it's going to develop over time. "The individual assets change, themes come and go, but actually for something that's been going for 31 years, the recurring theme is how you manage that over a long period of time."
Bloomberg
28-05-2025
- Business
- Bloomberg
Dalton Allies With Murakami-Linked Fund to Shake Up Fuji Media
Dalton Investments is joining forces with other investors to pressure Fuji Media Holdings Inc. to spin off its real estate arm, the latest development in what's become a litmus test for shareholder influence in Japan. Dalton's co-founder James Rosenwald said he's spoken with Aya Nomura, the Japanese broadcaster's single largest outside shareholder and the eldest daughter of prominent activist investor Yoshiaki Murakami. Spinning off the property unit may double the entertainment group's value, according to Rosenwald.
Yahoo
25-05-2025
- Business
- Yahoo
Declining Stock and Decent Financials: Is The Market Wrong About MTY Food Group Inc. (TSE:MTY)?
MTY Food Group (TSE:MTY) has had a rough week with its share price down 6.9%. However, the company's fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. Specifically, we decided to study MTY Food Group's ROE in this article. Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors' money. In simpler terms, it measures the profitability of a company in relation to shareholder's equity. AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early. ROE can be calculated by using the formula: Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity So, based on the above formula, the ROE for MTY Food Group is: 1.1% = CA$9.1m ÷ CA$819m (Based on the trailing twelve months to February 2025). The 'return' is the profit over the last twelve months. One way to conceptualize this is that for each CA$1 of shareholders' capital it has, the company made CA$0.01 in profit. View our latest analysis for MTY Food Group Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company's earnings growth potential. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics. As you can see, MTY Food Group's ROE looks pretty weak. Not just that, even compared to the industry average of 11%, the company's ROE is entirely unremarkable. In spite of this, MTY Food Group was able to grow its net income considerably, at a rate of 20% in the last five years. Therefore, there could be other reasons behind this growth. Such as - high earnings retention or an efficient management in place. As a next step, we compared MTY Food Group's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 17% in the same period. Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is MTY fairly valued? This infographic on the company's intrinsic value has everything you need to know. MTY Food Group has a three-year median payout ratio of 26% (where it is retaining 74% of its income) which is not too low or not too high. So it seems that MTY Food Group is reinvesting efficiently in a way that it sees impressive growth in its earnings (discussed above) and pays a dividend that's well covered. Moreover, MTY Food Group is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Upon studying the latest analysts' consensus data, we found that the company's future payout ratio is expected to rise to 37% over the next three years. In total, it does look like MTY Food Group has some positive aspects to its business. With a high rate of reinvestment, albeit at a low ROE, the company has managed to see a considerable growth in its earnings. While we won't completely dismiss the company, what we would do, is try to ascertain how risky the business is to make a more informed decision around the company. To know the 4 risks we have identified for MTY Food Group visit our risks dashboard for free. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
