Stock Tip: MSFT

I've been doing some research on Microsoft, here's an excerpt of an email I wrote to a friend making an argument for an investment in the software giant. I'm still doing my due diligence, but figured I'd share it here. Comments, thoughts, concerns?

Microsoft

Shares trading at $25.75
EPS = 2.33
P/E = 11.05 off trailing earnings
Cash per share = $5.15
Share Price less cash = $20.60
P/E with cash excluded = 8.9

Long-Term Debt is about 10% of Market cap. They've been issuing ridiculously cheap debt on the capital market to lower their cost of capital, which is fine for the equity holders.

Dividend Yield = 2.5%, they've been growing the dividend most years since they started issuing one, and are aggressively buying back shares.

Cash generation is very good. They made $24 billion from operations last year and borrowed $1.2 B. They spent $2B on CapEx, paid $4.6B in dividends, bought back $9B of stock, and built cash by $7.4B and allowed Accounts receivable to swell by $2B.

And did I mention, they're virtually a monopoly with low fixed costs and a 30% margin... and you might think that all those companies who will be upgrading to Office 2010 are priced in, except they're not.

2010 was record revenues and profits.

I read through most of the financials last night. Except for a $10B permanent deferred income tax liability (foreign) that doesn't show up on the balance sheet, I didn't see anything too alarming.