MSFT Falls On Layoffs: Time to Buy?

Today was a hectic day on Wall Street, as the Greek tragedy dominated headlines, along with the New York Stock Exchange computer glitch. One piece of news that may have been lost in all the market chaos is Microsoft Corporation‘s (MSFT) major layoff plans. CEO, Satya Nadella announced today that the software giant plans to cut up to 7,800 employees, nearly 7% of Microsoft’s workforce.

The majority of the job cuts are within the company’s Nokia smartphone business, which is also being scaled down significantly. The announcement doesn’t come as a surprise; many were puzzled by the Nokia acquisition to begin with and see this move as a part of Nadella’s plan to restructure the company. Given Microsoft’s tough year, could this latest move boost Microsoft to a buy rating? Find out now.

Microsoft started as a basement operation with Paul Allen and Bill Gates selling simple computer programs for the Altair 8800 microcomputer. Only 10 years later, the company released the first retail version of Microsoft Windows, an operating system that would ultimately become standard on most home PCs. With the success of Windows as well as Microsoft Office, Microsoft Inc. has grown into a tech giant that brings in just under $87 billion in sales annually.

Now, it seems Microsoft has fallen into a bit of a rut. Analysts estimate Microsoft’s second quarter EPS to be $0.56, only a penny above last year’s EPS. Meanwhile, the software giant is expected to report $22.07 billion in revenue. And the earnings growth estimate for the quarter is also fairly weak, at 1.18%.

On the fundamentals side, the company could use some work. Microsoft earns an A for its return on equity and a B for cash flow. However, it receives Cs sales growth, earnings momentum, earnings surprises, and analysts’ earnings revisions; while operating margin growth earns a D-grade. When you average these eight fundamental metrics, MSFT earns a C for its Fundamental Grade. The stock’s buying pressure is also pretty lackluster, earning a C for its Quantitative Grade.

While it’s clear that Microsoft is in the process of revamping, it’s still too soon to tell how the changes will impact its balance sheet. So the stock is still a C-rated Hold in Portfolio Grader. And, despite MSFT’s solid dividend yield, Fit also earns a C-rating in Dividend Grader.

Would you like to check the fundamentals backing up one of your stocks? For more stock grades, please visit my Portfolio Grader website!

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