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Micron Is Reasonably Valued after Solid Q1 Results
Stock Analysis & Ideas

Micron Is Reasonably Valued after Solid Q1 Results

Micron (MU) designs, develops, and manufactures industry-leading memory and storage products. By supplying a foundational capability for AI and 5G across data centers, the intelligent edge, and consumer devices, the company opens innovation across various industries, including healthcare, automotive, and communications.

Micron has experienced growing demand for semiconductors due to its technology and expertise being central to maximizing value from cutting-edge computing applications and new business models that disrupt and advance numerous industries.

Despite the ongoing semiconductor shortage and COVID-19 disruptions, the company has delivered growing financials and increased its capital returns. While risks remain, the stock appears reasonably valued and could bear further upside ahead. Still, I am neutral on the stock due to the industry’s ongoing uncertainty.

Latest Results

Micron’s Q1 results came in rather strong. Revenues were $7.69 billion compared to $8.27 billion for the prior quarter and $5.77 billion for the same period last year. GAAP net income came in at $2.31 billion, or $2.04 per diluted share, 187% higher year-over-year.

The company has now started shipping its industry-leading DRAM and NAND technologies across major end markets, delivering new solutions to its data center, mobile, graphics, and automotive clients.

With strong secular trends such as 5G, AI, and EV adoption supporting robust demand growth, Micron is well-positioned to create strong shareholder value next year powered by its industry-leading status and solid execution.

Micron also entered into strategic agreements to secure the supply of certain components that it needs to manufacture its products. Hence, the ongoing supply chain crisis should not meaningfully disrupt its operations, at least in the short term.

Valuation and Capital Returns

Micron investors have enjoyed magnificent gains over the past few years following the company’s excellent growth and profitability achievements during this period. MU stock is still off its 52-week highs, along with the rest of its industry peers.

It now trades at a forward P/E ratio of 10.3x. Note that while this multiple may seem rather low, the cyclical nature of Micron’s business model can hardly support any premium. Still, I find the valuation relatively reasonable considering that profitability should grow even slightly in the medium term.

The stock’s current valuation levels should also appear attractive for the company to continue repurchasing shares inexpensively. Buybacks have been Micron’s primary method of returning capital to shareholders. The company repurchased around $259 million worth of stock in the last quarter. This should indicate that management also finds shares reasonably priced.

Micron also declared its first-ever dividend back in August, amounting to just $0.10. There is an upcoming dividend for MU stock, with the ex-dividend date being December 30.

Wall Street’s Take

Turning to Wall Street, Micron has a Strong Buy consensus rating, based on 19 Buys, four Holds, and one Sell assigned in the past three months.

At $107.83, the average Micron price target implies 20% upside potential.

Disclosure: At the time of publication, Nikolaos Sismanis did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates  Read full disclaimer >

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