Stock Analysis & Ideas

Much Ado about Micron’s Recent Climb

One of the more interesting stocks of late in the semiconductor/memory chip space is Micron (MU). Looking at the wild ride this stock has been on over the past year, it’s clear there’s a lot to unpack with this company. In 2021, Micron stock surged to nearly $100 per share, amid the short-squeeze mania and run-up in stock prices we saw early on in the year. However, interest waned in this stock, taking MU shares to nearly $65 apiece in Q4.

What a difference a few months can make. Micron’s stock price is back on the move, with MU shares rising toward their all-time highs. Currently, Micron is within spitting distance of its all-time high, amid very strong earnings and a positive outlook for demand and margins moving forward.

Of course, Micron remains in a highly-cyclical industry. Prices fluctuate based on supply and demand. Accordingly, it’s entirely possible that a reversal could take hold at some point, if economic conditions change.

That said, I remain bullish on MU stock, for a number of reasons. Let’s dive into what investors may want to consider with this growth-oriented tech stock.

Strong Earnings Boost Outlook

Micron’s recent fiscal Q1 earnings shed a very positive light on the company’s outlook. In particular, the company’s product portfolio really shined, with Micron’s “industry leading DRAM and NAND technologies” being shipped across major end markets. These markets include a range of sought-after growth areas of the economy such as electric vehicles, AI and 5G. That’s something investors like.

Looking at the numbers, it’s clear why investors are getting excited about Micron. The company brought in $7.69 billion this previous quarter, compared to $5.77 billion for the same quarter a year prior. That’s good for a 33% year-over-year rise. Those seeking companies with top-line growth potential ought to like those sorts of numbers, particularly since the semiconductor/memory markets are supposed to be ultra-tight right now.

Additionally, GAAP net income came in at $2.3 billion, or $2.04 per diluted share, with operating cash flow of $3.94 billion rounding out the reported numbers. These numbers beat last year’s tallies by a small margin.

Overall, these numbers highlight the strength of Micron’s positioning in the overall market. Those bullish on the demand for various types of memory increasing ought to like Micron’s continued impressive growth trajectory.

Growing Chip Content Favoring MU

Memory price swings only pose a near-term hurdle for Micron. However, these price swings do not appear to be a risk for long-term investors who are thinking about the secular catalysts underpinning this growth. Indeed, looking to some of the key industries driving demand for Micron chips (AI, EVs, and 5G), this demand driver is likely to continue for decades to come.

According to the company’s recent reports, approximately 72% of Micron’s fiscal 2021 revenue came from DRAM (Dynamic random-access memory) products. On the other hand, NAND or non-volatile memory totaled 25%.

These technologies are utilized in solid-state storage drives and memory chips found in personal computers. But they are also increasingly used in fast-growing markets like 5G, data centers, and the IoT. These are the primary growth drivers most investors are focusing on. In other words, Micron’s customer base is shifting from more “legacy” names, to higher-growth companies in fast-growing sectors.

Overall, the NAND and DRAM market share, as a percentage of the overall semiconductor industry, has grown from around 10% to 30% over the past decade. Increasing chip content in industrial and consumer products is driving this growth. Accordingly, Micron’s stock price increase of more than 1,000% or so over the past decade speaks to this growth.

As an upgrade cycle continues in 5th generation phones, and more memory is needed for 5G, EV and AI solutions, Micron is well-positioned to capture this growth.

Micron’s Dividend Shouldn’t Be Ignored

One of the interesting developments with Micron stock this past year was the company’s announced move to issue a dividend in August. This announcement took many by surprise, particularly given the growth trajectory of the company and the capital-intensive nature of this business.

For high-growth companies like Micron, a dividend can be viewed in one of two ways. On the one hand, returning value to shareholders via a dividend is a sign that cash flows are expected to remain strong. Long-term, conservative investors like dividends, because they signal they’ll get their money back over time.

On the other hand, growth-oriented investors may not like this dividend move. That’s because the cash Micron generates could earn higher returns when reinvested in the company’s core business.

That said, this dividend payout is relatively microscopic. At the time of writing, Micron’s dividend yield sits at around 0.21%. While expectations are that the company’s management team will increase this dividend over time, it’s one move that both skeptics and dividend investors can get behind. Accordingly, there are many who believe this dividend issuance was a smart move.

What are the Analysts Saying about MU Stock?

According to TipRanks analysts rating consensus, Micron is a Strong Buy. Out of 24 analyst ratings, there are 19 Buy recommendations and 4 Hold recommendations. 

This stock has an average Micron price target of $111.52, implying upside of 14.5%. Analyst price targets range from a high of $165 per share to a low of $58 per share.

Bottom Line

The early outlook of MU for the calendar year 2022 indicates more growth could be on the horizon. Of course, the pace of this growth is what most investors have on top of their mind. For now, bulls on the memory niche of the semiconductor market are winning out in their view that Micron stock could outperform.

Micron stock will be an interesting pick for investors to follow this year. This is one that most growth investors may want to put on the watch list. Indeed, 2022 could be another banner year.

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