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Is Microsoft Corporation (MSFT) Cheap? – Intel Corporation (INTC), Qualcomm

Indeed, Qualcomm has performed very well recently. The stock has risen more than 20% since the beginning of 2012. In its 2012 annual report, the company announced revenues and diluted earnings per share increased by 27% and 39%, respectively.  As a result, the market awards Qualcomm with a P/E in the high teens.

Microsoft Corporation (NASDAQ:MSFT) can’t boast these kinds of growth rates, and whether it ever will again is in question. Excluding the company’s goodwill impairment charge, Microsoft would have reported 2012 diluted earnings per share growth of less than 2%, along with 5.4% revenue growth year over year.

Not so fast

Unfortunately, concerns abound among Microsoft Corporation (NASDAQ:MSFT)’s non-performing business segments. The Online Services division, which includes the Bing search engine, continues to hemorrhage money. Microsoft lost $8 billion last year from its Online Services division alone.

A further concern is that the company’s Windows & Windows Live Division, which includes its Windows operating system, saw a revenue decline last year. After 2011, this was Microsoft’s second-largest division by revenue. This certainly won’t help the chorus of claims from the media that the PC is dead.

Fortunately, the company’s bread and butter divisions, Business and Services and Tools, continue to perform well, seeing full-year revenue increases of 7% and 12%, respectively.

Add it all up

Microsoft Corporation (NASDAQ:MSFT) has a problem: it’s got a cash-generating machine of a business model that continues to churn out healthy cash flows. You might be asking yourself how this qualifies as a problem at all. While it’s a quandary many other companies would love to have, it’s still a problem because Microsoft has few outlets for this cash flow.

The company bought Skype in 2011 for $8.5 billion, and the benefits from this acquisition are yet to be seen. Microsoft has also tried buying back its shares and increasing its dividend, but that hasn’t convinced the market to reward the stock with a higher valuation.

In the end, what I think we have with Microsoft Corporation (NASDAQ:MSFT) is a slow-growing company that should keep pumping out reliable cash flows to investors. The stock trades for an attractive P/E and pays a healthy 3.3% dividend. Unless an unforeseen catalyst comes down the pike, it’s unlikely for Microsoft to grow its earnings at a rate that will unleash a growth stock-type valuation for the stock. However, you could certainly do worse than a high-yield, high-quality value stock, which Microsoft appears to be.

The article Is This Technology Mega-Cap Stock Cheap? originally appeared on and is written by Robert Ciura.

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