Is Micron Technology, Inc. (MU) Stock Worth a Buy in 2017?

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Micron Technology, Inc. (NASDAQ:MU) has given its investors reasons to be happy in 2016, after a torrid 2015 that saw Micron stock lose by over 59%. Year-to-date, 2016 MU stock has gained 63% and everything looks set for Micron’s bullish run to extend well into 2017.

Is Micron Technology, Inc. (MU) Stock Worth a Buy in 2017?

The optimism, so to say, comes from MU’s impressive results for the first quarter of its fiscal year 2017.

For the quarter ended Dec. 1, Micron stock reported earnings of 32 cents per share — excluding items described by MU — three cents better than the earnings-per-share of the first quarter of the prior year. It’s also a huge change in direction from the 1 cent per share loss it reported in its fiscal fourth quarter of 2016.

Revenue for the quarter clocked in at $3.97 billion, a 19% improvement on a year-over-year basis and a 23% improvement sequentially. Things become more pretty for Micron stock, considering that analysts were expecting earnings excluding items of 28 cents a share on a revenue of $3.98 billion.

More impressively, MU expects to earn between 58 cents and 68 cents on revenue ranging between $4.35 billion and $4.7 billion in its second fiscal quarter of 2017. By comparison, Wall Street folks are expecting 39 cents a share on a revenue of $3.91 billion for the second quarter. But is MU stock a buy in 2017? Here are the positives and the negatives.

The Good News for Micron Stock

The impressive first fiscal quarter of 2017 is mainly down to a favorable demand and supply dynamics. CEO Mark Durcan said supply is declining while demand is rising in a number of its important segments. He said the average selling prices for PC DRAM have gone up between 50% and 60% in comparison to trough pricing, following about 18 months of price decline. This was driven by oversupply of DRAM chips, which saw consecutive quarters of revenue decline during its fiscal 2016.

Durcan also said that its NAND business is seeing “like-for-like” pricing improvement. Micron stock is working on benefiting more from the pricing improvement here by shifting its “product portfolio to 3D and TLC NAND, which enables higher density and lower cost products that also have lower [average selling prices] ASPs”

Apart from the fact that this move would likely improve segment profitability, it’s also going to help MU stock deal with bigger competitors. Micron owns only the fourth largest share of the NAND market, behind Samsung (OTCMKTS:SSNLF), Toshiba (OTCMKTS:TOSBF) and Western Digital Corp (NASDAQ:WDC). Samsung for instance, can afford to drive down costs and make up for the lower margins in its other businesses if need be. So being able to lower costs will help MU stock cope with competitive pressures.

The Bad News for Micron Stock

While the company’s expansion moves would help MU stock compete, I still believe that competition remains its biggest threat. The reason it’s so much exposed to competition is that it doesn’t control the largest portion of any of its key markets — not even second largest. The leaders can decide to flood the market to drive down prices in the future to win more business and hurt smaller players like MU stock. This is similar to what happened recently when the company was reporting declining revenue.

Micron stock is also exposed to the unstable PC market. In its first fiscal quarter, PC DRAM accounted for around $605.4 million of its revenue. That’s about 15% of its revenue. As PC sales continue to decline — and they have declined for eight consecutive quarters — its PC DRAM business is going to suffer. Although, it should also be said that its mobile DRAM business has been contributing more to its revenue.

Bottom line on MU Stock

While the demand and supply outlook of the semiconductor market is favorable for Micron stock in the near-term, concerns remain as to whether it can deal with future oversupply.

Still, MU stock looks better than some of its competitors with a forward price-to-earnings ratio of about 11. This is cheaper compared to Intel Corporation’s (NASDAQ:INTC) forward P/E of 13.

Although that is quite attractive, it hinges on assumptions that it will deliver impressive earnings. If you’re confident in Micron’s future earnings, there could be a bargain here in 2017. Otherwise, I’d stay off MU stock.

As of this writing, Craig Adeyanju did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/12/micron-technology-inc-mu-stock-worth-buy-2017/.

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