Stock Spotlight

At Micron, growth not just a memory

Recent Price
$33
Dividend (estimated)
$0.00
Yield (estimated)
0.0%
P/E Ratio
10
Shares (millions)
1,203
Long-Term Debt as % of Capital
30%
52-Week Price Range
$34.85 - $18.51

Micron Technology ($34; MU) makes memory components for personal computers, mobile devices, and network servers. Demand for memory is volatile, and prices are prone to wild swings. But near-term trends look favorable in several key markets.

• The upgrade cycle for servers used in data centers has further to go.

• Smartphones demand more and more memory.

• The personal-computer market appears to be improving, with global shipments projected to average 3% growth over the next five years, according to industry researcher Gartner.

Analyst estimates for Micron have risen in the past 30 days, with the consensus projecting 18% higher per-share profits in the November quarter and 14% growth in fiscal 2015 ending August. Yet Micron shares look cheap at 10 times trailing earnings and nine times estimated year-ahead profits, roughly 50% of the median valuation for S&P 1500 Index semiconductor stocks. Micron is a Buy and Long-Term Buy.

What Micron does

Micron is one of three semiconductor stocks on our buy lists, each one residing in a different niche. Micron focuses on two types of memory:

• Dynamic random access memory (DRAM) lets electronic devices store and retrieve data quickly. DRAM accounted for 68% of Micron's revenue in fiscal 2014 ended August.

• Re-writeable NAND flash memory (27% of fiscal 2014 sales) allows devices to retain their content after the power turns off. Smartphones, tablets, and personal computers use NAND semiconductors; automakers and other manufacturers also depend on NAND components.

Like Micron, SanDisk ($98; SNDK) makes memory semiconductors, though it focuses on NAND flash memory. Skyworks Solutions ($64; SWKS) builds analog semiconductors that power devices and connect them to each other.

In each of the past five quarters, Micron has grown sales and cash from operations at least 45%, helped by the combination of favorable industry trends and an acquisition. It fished Elpida Memory out of bankruptcy for about $2 billion in July 2013, nearly doubling its share of the DRAM market.

Business investment

The industry's rapid innovation demands heavy capital spending. Micron replaces a large portion of its equipment every three to five years. To defray some of those costs, Micron has formed joint ventures with tech giants Intel ($35; INTC) and Hewlett-Packard ($37; HPQ), among others. Still just four of the 38 semiconductor companies in the S&P 1500 Index spend a higher percentage of their operating cash flow on capital expenditures than Micron.

Micron generated $3.04 billion in free cash flow in fiscal 2014, more than five times higher than in fiscal 2013. Micron, which is using some of that cash to restructure its convertible debt, announced in October plans to buy back up to $1 billion in stock. Together, these efforts could reduce the share count by more than 10%.

An annual report for Micron Technology Inc. is available at 8000 S. Federal Way, Boise, ID 83716; (208) 368-4000; www.micron.com.


 

Micron Technology

 
Quarter
Per-Share Earnings
Sales Change
Quarterly Price Range
P/E Ratio Range
Aug '14
$0.82
vs.
$0.29
49%
$34.85
-
$28.05
13 - 10
May '14
0.79
vs.
0.16
72%
29.03
-
21.02
14 - 10
Feb '14
0.85
vs.
0.09
98%
25.68
-
20.64
20 - 16
Nov '13
0.77
vs.
-0.24
120%
21.31
-
13.70
71 - 46

 
Year (Aug.)
Sales (Bil.)
Per-Share Earnings*
Per-Share Dividend
52-Week Price Range
P/E Ratio Range
2014
$16.36
$3.23
$0.00
$34.85
-
$13.70
11 - 94
2013
9.07
0.30
0.00
15.07
-
5.16
50 - 17
2012
8.29
-1.04
0.00
9.16
-
3.97
NM
2011
8.79
0.17
0.00
11.95
-
5.18
70 - 30

 
Quadrix Scores†
Overall
Momentum
Value
Quality
Financial Strength
Earnings Estimates
Performance
100
99
87
96
84
75
82

* Earnings exclude special items. NM Not Meaningful.
† Quadrix® scores are percentile ranks, with 100 the best.
e Dividend and yield estimated.

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