Micron (MU) Stock: Relief Rally or the Real Deal?

One of the few tech stocks up in Friday’s market is Micron (MU). Granted, today’s 3%-plus move on earnings is little consolation for MU shareholders, who have seen 45% of their value erode since early June, but relief is relief.

Micron Stock:  Relief Rally or a Real Rally?The question now is: Is this all the relief we’ll get … or is Micron stock a long-term opportunity for value investors?

First, let’s look at Micron’s latest earnings report.

For the fiscal fourth quarter, revenues dropped by 14.8% year-over-year to $3.6 billion, though that figure still beat Wall Street estimates for $3.55 billion. Meanwhile, adjusted earnings of 37 cents per share of Micron stock, while down 31%, also topped the consensus expectation for 32 cents.

A decent beat — but then, Wall Street set a fairly low bar.

Guidance on Micron earnings was a bit muted as well. For fiscal Q1, MU expects earnings of 20 to 26 cents per share on revenues of $3.35 billion to $3.6 billion. The Street was hoping for

Regarding the guidance on Micron earnings, it was also a bit muted. For fiscal Q1, the company expects earnings of 20 cents to 26 cents per share and revenues to range from $3.35 billion to $3.6 billion. The Street forecast, on the other hand, called for earnings of 38 cents on revenues of $3.74 billion.

As should be no surprise, a key reason for Micron’s earnings weakness is the secular decline in the PC business — something well baked into the value of Micron stock at this point. However, on the earnings call, MU also noted weakness in China and oversupply issues. All the while, the competitive environment remains fierce, with rivals like Samsung (SSNLF), SanDisk (SNDK), SK Hynix and Toshiba.

And yet, bullish drivers remain for Micron stock.

Why Investors Can Believe in a Micron Stock Rebound

MU continues to show strength in its mobile business, which grew at a 2.1% sequential rate in the latest quarter. Increasing sophistication in smartphones is driving demand for high-end memory chips. And as noted on the Micron earnings call, there is promising long-term growth potential in emerging markets as consumers move toward higher-priced handsets.

In the meantime, Micron has been pursing savvy acquisitions, including deals for Elpida and Rexchip. They have helped to boost market share in new markets and have also brought on new marquee customers, including Apple (AAPL).

But perhaps the biggest bullish factor for Micron stock is the focus on innovation. For example, the company plans to roll out its next-generation 3D chips, which will allow for much more power and efficiency. As a validator of the technology, Micron has snagged Intel (INTC) as its strategic partners. For the most part, this should bode well for allowing for wide-scale distribution.

Micron also is making headway on its 20-nanometer DRAM and 3D NAND technology as well, which should help profit margins.

Lastly, the fact that Micron stock has taken such a beating has MU trading for a song. Micron trades at just six times earnings; by comparison, Qualcomm (QCOM) is trading at 11X and Avago Technologies (AVGO) sports a multiple of 13X.

Bottom Line

Even though Micron continues to face lots of competition and slowing PC demand, there is still much to be encouraged about. MU is in the midst of a major product transition, in terms of new technologies and manufacturing approaches. Micron also should see strength in mobile as well as from the lift of its strategic relationship with Intel.

And again, the valuation on Micron stock is certainly compelling.

For value investors who are looking for an interesting play in the tech space, MU looks like a pretty good choice for now.

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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Article printed from InvestorPlace Media, https://investorplace.com/2015/10/micron-stock-mu-rally/.

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