I am bullish on Micron Technology (MU) due to its strong growth potential, cheap valuation, and strong Wall Street consensus.
Micron is a leader in innovative computer memory and data storage solutions, producing high-performance dynamic random access memory, NAND flash memory, and NOR memory.
The company’s products are used to make advances in artificial intelligence, 5G applications, data centers, and client and mobile user experience. (See Micron stock charts on TipRanks)
Strengths
Due to Micron Technology’s strong and solid execution, the company has recently achieved record-largest sequential earnings per share improvement.
Over the last two years, Micron Technology has exceeded its earnings per share and revenue expectations in every quarter. The company’s embedded businesses also exceeded $1 billion for the first time, showing its highest revenue across automotive and industrial markets.
Recent Results
Micron Technology reported excellent results in Q3 2021, which ended on June 3. The company announced revenue of $7.4 billion, up 19% quarter-over-quarter and 36% year-over-year.
It also showed an operating cash flow of $3.6 billion as compared with $3.1 billion in the second quarter of 2021, and $2 billion in the third quarter of 2020. In addition, the company’s non-GAAP net income was reported at $2.2 billion, or $1.88 per diluted share.
Micron’s DRAM technology segment was responsible for 73% of total revenues for the quarter, showing an increase of 23% quarter-over-quarter, and an increase of 52% year-over-year.
The NAND segment comprised 24% of the total revenue, up 10% quarter-over-quarter, and 9% year-over-year. Both segments also showed a low-single-digit increase in bit shipments, and a high-single-digit increase in ASPs as compared with the last quarter.
For the near future, Micron is aiming to align its long-term bit supply growth rate with the industry’s demand growth across both its DRAM and NAND segments.
The company also expects the calendar year 2021 DRAM and NAND bit supply growth to be below industry demand growth. The capital expenditure for the fiscal year 2021 was also revised to over $9.5 billion.
Valuation Metrics
Micron stock looks quite attractive at the moment, given that it trades at just 4.3x forward EBITDA, and 7.8x forward normalized earnings.
Normalized earnings per share surged by 114.1% in 2021, and are expected to increase at a robust 51.2% in 2022, and 22.6% in 2023.
Wall Street’s Take
From Wall Street analysts, Micron earns a Strong Buy analyst consensus based on 13 Buy ratings, three Hold ratings, and zero Sell ratings in the past 3 months.
The average Micron price target of $102.50 puts the upside potential at 46%.
Summary and Conclusions
Micron stock looks attractive, as it is enjoying very strong growth momentum, its stock price trades at low multiples relative to EBITDA and normalized earnings, and Wall Street analysts are overwhelmingly bullish on the stock.
That said, Micron operates in a cyclical industry, so investors should keep in mind that results – and the share price – can be very volatile.
Disclosure: At the time of publication, Samuel Smith did not have a position in any of the securities mentioned in this article.
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