Micron Technology, Inc. (MU) Stock Is Only Getting Started

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The market is facing a tight supply for memory, called DDR3 and DDR4 modules. So it is the reason Micron Technology, Inc. (NASDAQ:MU) easily beat consensus estimates when the company reported second-quarter earnings.

Micron Technology, Inc. (MU) Stock Is Only Getting Started

Its third-quarter forecast is even more of an eye-opener. The company sees business booming even more than the most optimistic consensus view.

For once, analysts are ahead of the curve: analysts at Cowen, Goldman Sachs and Merrill Lynch upgraded the stock ahead of results.

Micron’s Solid Quarter

Higher chip prices drove profitability and revenue for Micron in the second quarter. Dubbed the “ultra-super cycle,” supply bottlenecks and high demand are driving prices up. Last year is clearly an inflection point in demand for such chips.

In 2015-16, smartphone growth waned as manufacturers failed to release many new models. By mid-2016, these companies re-designed the mobile devices, added more features, all of which made it compelling for consumers to upgrade.

Micron is benefiting from this trend. Revenue from DRAM accounted for 64 percent of the total. NAND demand, which is used for high-speed storage, also rose. Sales grew 18 percent year-on-year. Instead of earning $0.90 a share in Q3, Micron expects to earn up to $1.57 a share.

Low Valuations

Even after Micron’s stock surged, the annualized earnings result of $6.28 a share ($1.57 x 4) implies a P/E of 4.7 times when the stock is under $30. The risk is that investors should not assume the growth continuing for four quarters straight. Yet Micron is coming up with products that use 3D XPoint, a manufacturing process that promises better performance. The company also expects increased profitability as shipment starts later in 2017.

Micron’s production of 3D NAND will only rise. Next fiscal year (FY 2018), it will get to 90% of Micron’s total bit output. Storage demand lifted Micron’s storage business. Micron had this to say:

“The results were primarily driven by strong growth in client and cloud SSD shipments and lower costs. Our 5100 cloud drive which was introduced in December, continues to be well received and is in the process of additional calls on a large number of customer platforms.”

Micron’s business is predominantly memory and solid state storage, so the positive outlook suggests strength for this market. Expect growth continuing for Seagate Technology plc (NASDAQ:STX) and Western Digital Corporation (NASDAQ:WDC).

Their stock prices both trade at a forward P/E in the single digits, at 9.9 and 8.5, respectively.

Strength in Autos

Higher demand for NAND in the automotive market explains why Intel Corporation’s (NASDAQ:INTC) made its acquisition of Mobileye N.V. (NYSE:MBLY). Driver assist systems, autonomous driving and infotainment require NAND and memory parts.

Thanks to Micron’s strong market share in auto, Micron will benefit from the rollout of ADAS (advanced driver-assistance systems) in the years ahead. This revenue stream also diversifies its reliance away from computers and mobile devices.

Bottom Line on MU Stock

Samsung Electronic’s (OTCMKTS:SSNLF) wafer builds will raise the supply of chips, depressing market prices. But building chip plants is expensive and takes time. Micron already invested in this infrastructure ahead of its competition. So this gives the company a competitive advantage.

Like hard disk suppliers, Micron’s forward P/E is in the single digits at around eight times earnings. The bullish cycle for the company is in the early innings. Expect the company keeping its shareholders happy this year.

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

Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get actionable insight to achieve strong investment returns.


Article printed from InvestorPlace Media, https://investorplace.com/2017/03/micron-technology-inc-mu-stock-is-only-getting-started/.

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