MU Stock: A Bad Memory and an Opportunity for Micron Technology, Inc.

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Lately, investors have been betting that Micron Technology, Inc. (MU) — a large memory chip manufacturer, — was in the early stages of a nice recovery. But unfortunately, the optimism may have been overeager. In today’s early trading, Micron stock was off as much as 9.5% to $12.45.

MU Stock: A Bad Memory and an Opportunity for Micron Technology, Inc.The reason for this is a disappointing earnings report. During the fiscal third quarter, MU stock posted revenues of $2.89 billion, off 25% on a year-over- year basis, and a net loss of 8 cents per share. The Street, however, was predicting revenues of $2.96 billion and a 9 cent loss on Micron stock.

The guidance was also far from inspiring. MU is forecasting current quarter revenues of $2.9 billion to $3.2 billion and a net loss of 16 cents to 24 cents. Yet the analysts’ consensus was for revenues of $3.2 billion and a profit of 4 cents on MU stock.

As should be no surprise, a significant drag on performance has been the continued deterioration of the PC market (DRAM chips from MU are a key component). According to a report from Gartner, there was a 9.6% plunge in PC shipments during the first quarter.

Keep in mind that this was the sixth consecutive decline.

But Micron stock also suffered from delays in parts of its mobile chips business. Then again, the company has been launching sophisticated next-generation NAND flash memory technology. And yes, there are generally hiccups.

But MU stock management is taking swift action. For example, the company plans to reduce the workforce by 7.5% and also to introduce various other cost-cutting measures. By fiscal 2017, Micron expects to realize over $300 million in annual savings.

Bottom Line On Micron Stock

For investors in MU stock, there are still silver linings, besides the cost cutting. Consider that the company has been transitioning its business to growth categories like networking, cloud computing and embedded systems (such as for autos). There are also opportunities with emergent trends, such as the Internet of Things, which will require large amounts of memory chips.

Oh, and there are also graphics-intensive markets like virtual reality (VR) that are very promising. To this end, MU has a key partnership with NVIDIA Corporation (NVDA).

Something else: Regardless of today’s setback, Micron stock has been mostly trading in a range of $10 to $12 or so. In other words, it looks like there is some type of bottoming action. The price-to-earnings multiple of 13X on Micron stock is also in line with various other chip makers like Western Digital Corp (WDC) and Intel Corporation (INTC).

What’s more, the company continues to crank out substantial cash flows. In the latest quarter, they came to $389 million. And with the cost cutting, there could be a boost over time.

So at current levels, MU stock may be at a good entry point investors, especially given that the mobile business will likely pick up speed over the next few quarters and as the company begins to benefit from the launch of its latest NAND technologies.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2016/07/bad-memory-micron-stock-mu/.

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