Is Micron a Buy as it Nears $100?

An industry leader in innovative memory and storage solutions Micron Technology Inc. (MU) offers a diverse range of high-performance DRAM, NAND, and NOR memory and storage solutions under the Micron and Crucial brands. The company delivered stronger than expected quarterly results last month, backed by high demand from data centers and electric vehicle (EV) manufacturers, and raised its future outlook based on expectations of an easing of chip shortages this year.

The stock has gained 12.8% in price over the past six months and 24.6% over the past three months to close yesterday's trading session at $85.07. Furthermore, the stock hit its $98.45 all-time high on Jan. 5.

In addition, Citi has upgraded the stock's rating from "sell" to "buy" based on its forecast of a solid recovery in the DRAM memory chip market.

Click here to checkout our Semiconductor Industry Report for 2022

Here is what could shape MU's performance in the near term:

Positive Developments

This month, MU commenced the world's first 176-layer QLC NAND SSD volume shipments. MU's 176-layer QLC NAND, which is built with the most modern NAND architecture, provides the industry's top storage density and optimal performance for a wide range of data-rich applications. The 176-layer QLC NAND will also be included in select Micron Crucial consumer SSDs and will be accessible as a system designer component.

Last month, MU announced plans for a new memory design facility in Midtown Atlanta, further increasing the company's presence in the Southeast. The new location will allow MU to expand its memory design and engineering leadership while also benefiting the city. In addition, the company intends to form significant alliances with several regional universities, including Emory University, Georgia Tech, Morehouse College, Spelman College, and the University of Georgia.

Strategic Collaborations

Last month, MU announced an extension of its commercial agreement with United Microelectronics Corporation (UMC), giving itself options to ensure future supply for automotive, mobile, and critical clients. The expanded relationship gives MU continued access to components vital to its automotive and mobile clients, bringing their collective industry-leading memory and storage solutions to customers worldwide.

Robust Financials

During the first quarter, ended Dec. 02, 2021, ACN's total revenue increased 33.2% year-over-year to $7.69 billion. Its operating income increased 203.8% year-over-year to $2.63 billion. And the company's net income grew 187.2% from its year-ago value to $2.31 billion, while its EPS grew 187.3% from the prior-year quarter to $2.04.

Strong Profitability

MU's 24.9% trailing-12-months net income margin is 285% higher than the 6.5% industry average. Also, its 14.7%, 251%, and 232.4% respective ROC, EBITDA margin, and ROA are  higher than the respective industry averages. Furthermore, its $14.44 billion in cash from operations is 12087.4% higher than the 118.48 million industry average.

Impressive Growth Prospects

The Street expects MU's revenues and EPS to rise 16.4% and 47.7%, respectively, year-over-year to $32.25 billion and $8.95, in its fiscal 2022. In addition, MU's EPS is expected to rise at a 23.8% CAGR over the next five years. Also, the company has an impressive earnings surprise history; it topped the Street’s EPS estimates in each  of the trailing four quarters.

Discounted Valuation

In terms of forward Non-GAAP P/E, the stock is currently trading at 10.04x, which is 57.3% lower than the 23.53x industry average. Also, its 3.10x forward EV/Sales is 21.5% lower than the 3.94x industry average. And MU's 1.96x forward Price/Book is 64.1% lower than the 5.45x industry average.

Consensus Rating and Price Target Indicate Potential Upside

Of 24 Wall Street analysts that rated MU, 19 rated it Buy, and four rated it Hold. The 12-month median price target of $111.52 indicates a 31.1% potential upside. The price targets range from a low of $58.00 to a high of $165.00.

POWR Ratings Reflect Solid Prospects

MU has an overall A grade, which equates to a Strong Buy rating in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. MU has a B grade for Quality, Growth, and Value. MU's solid earnings and revenue growth potential are consistent with its Quality and Growth grade. In addition, the company's lower-than-industry multiples are in sync with the Value grade.

Of 100 stocks in the A-rated Semiconductor – Wireless Chip industry, MU is ranked #7.

Beyond what I stated above, we have graded MU for Sentiment, Stability, and Momentum. Get all MU ratings here.

Bottom Line

MU has exhibited robust financial performance in its last reported quarter and is on track to deliver solid growth in the coming months based on its impressive product portfolio. In addition, given the favorable analysts' sentiments and the company's fundamental strength, the stock could deliver handsome gains in the near term. So, we think the stock could be a great bet now.

How Does Micron Technology Inc. (MU) Stack Up Against its Peers?

MU has an overall POWR Rating of A, which equates to a Strong Buy rating.  Check out these other stocks within the Semiconductor – Wireless Chip industry with A (Strong Buy) ratings: ChipMOS Technologies Inc. (IMOS), Semtech Corporation (SMTC), and Broadcom Inc. (AVGO).

Note that AVGO is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Growth portfolio. Learn more here.

MU shares were trading at $84.13 per share on Friday morning, down $0.94 (-1.10%). Year-to-date, MU has declined -9.68%, versus a -6.46% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

More...