Microsoft Corporation (NASDAQ:MSFT) is not an easy stock to love right now. Redmond has underperformed (and thus held back) the Dow Jones Industrial Average over the last decade, and it needed an epic post-earnings surge in April to stay apace with the Dow in a one-year time frame. Windows 8 is the most maligned Windows version since the disaster you know as Vista, and Microsoft Corporation (NASDAQ:MSFT) found it hard to gain traction in the mobile market that’s undermining its core desktop and laptop markets.
Starting at the top of the income statement, Microsoft Corporation (NASDAQ:MSFT)’s 75% gross margin fell behind American Express Company (NYSE:AXP) at 76% and Pfizer Inc. (NYSE:PFE) at 81%. As it turns out, the medical giant is Microsoft Corporation (NASDAQ:MSFT)’s main rival in the margin races; the names pair up time and again as we move forward.
Reading the headlines since the Windows 8 release, you might have thought Microsoft had already crashed and burned. But its gross margins have stayed remarkably steady, even as its most important product faltered. Meanwhile, Pfizer Inc. (NYSE:PFE) doesn’t seem worried at all about the upcoming impact of Obamacare, as the company shows a rising pricing trend and strong gross income.
PFE Gross Profit Margin TTM data by YCharts.
Things change a bit on the operating line, where Microsoft has been spending billions on research and marketing for several drastic product overhauls. On top of Windows 8’s PR infusion needs, the company is also gearing up for the Xbox One launch later this year, not to mention the all-new range of Surface tablets that didn’t factor into past fiscal years. Pfizer Inc. (NYSE:PFE)’s gross profits trickle down to the operating line almost undiluted, though both trail the surging McDonald’s Corporation (NYSE:MCD) operating profits. The fast-food king has diversified its menu in recent years without sacrificing its ultra-efficient operations. That’s an impressive feat in any industry, and particularly so in a cutthroat consumer business like quick-service dining.
MSFT EBIT Margin TTM data by YCharts.
Pfizer Inc. (NYSE:PFE) wins the EBITDA battle with Microsoft. In terms of normalized net income, Microsoft ties for first place with megabank JPMorgan Chase & Co. (NYSE:JPM) at 22.3%. And when it comes to the most Foolish margin of them, all, Microsoft stands alone with a 29% free-cash-flow margin — miles ahead of second-place performer Pfizer Inc. (NYSE:PFE).
The takeaway here is that Microsoft might be down in the court of public opinion, but the company is far from out. Microsoft built an unmatched cash machine that a ham sandwich could run for decades before running out of mulligans. CEO Steve Ballmer is overdue for replacement, but the wheels will keep on turning until Microsoft’s board can find a suitable replacement. These margins weren’t pulled out of thin air, and they’re too strong to crumble overnight.
The article 1 Solid Reason to Own Microsoft Stock originally appeared on Fool.com.
Fool contributor Anders Bylund holds no position in any company mentioned. Check out Anders’ bio and holdings or follow him on Twitter and Google+. The Motley Fool owns shares of McDonald’s and JP Morgan Chase. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
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