Like most tech stocks, Micron Technology (NASDAQ: MU) has been sold off heavily over the last year. The company is currently down -37.69% YTD, and with the specter of a possible recession forming on the horizon, it could fall to lower levels due to lower consumer demand for semiconductors. This sell-off has led some investors to wonder if the company is undervalued at current levels and if parking money in MU will yield above-average returns compared to its sector competitors or the broader market. In this article, we'll examine both sides of the bull and bear case to give our readers the complete picture.
What The Bulls Say About Micron
In his most recent article on the company, my colleague Thomas Hughes outlined part of the bull case for MU. Hughes stated MU is trading at a relatively inexpensive valuation compared to its competitors in the same sector. The business trades at approximately 7X its earnings compared to 11X to 12X for other semiconductor stocks. Hughes also touched on the safety of the company's dividend and its upside potential for recovery. MU currently has a 46.54% upside from analysts at the time of writing, with a consensus price target of $87.42.
There are a couple of growth metrics where MU shines as well. The company's FWD EBITDA growth and FWD EPS Diluted Growth figures are all well above the sector medians. The company's FWD EBITDA growth stands at 24.30% while the sector median is at 22.51%. Its FWD EPS Diluted Growth is 34.52%, while the sector median stands at 15.52%.
What The Bears Say About Micron
However, despite these promising metrics, there are some areas where the stock is comparatively weaker than the sector medians. Over the last three months, there have been numerous revisions to its EPS and revenue growth estimates. There have been 26 EPS down revisions and 25 revenue down revisions.
Over the short term, the company has also underperformed the S&P 500 considerably. In the last six months, the company delivered a negative return of -27.22%, while the S&P delivered a negative return of 9.86%. Over five years, MU beat the S&P 500, delivering a positive return of 100.13% and the S&P 500 58.25%.
Micron Technology Vs. Analog Devices Inc
Analog Devices Inc (NASDAQ: ADI) is a strong competitor to MU in the semiconductor industry and IT sector. The companies have a similar market cap with 66.35B for MU and 84.75B for ADI, respectively. ADI has outperformed MU over the last three years in terms of return. ADI's three-year return stands at 39.85%, while MU has a three-year return of 26.36%. The return over the last ten years is much more in favor for MU as it has a return of 908.51%, while ADI has a 10-year return of 432.06%.
Regarding dividends, ADI is the clear favorite with a higher rate and yield along with 18 years of consecutive dividend growth. The dividend rate of ADI is $2.90, and MU's rate is $0.42. The payout ratio for MU and ADI stands at 4.46% and 37.23%, respectively.
On the other hand, for valuation MU is relatively cheaper than ADI. MU's FWD P/E ratio is 7.61, while ADI has an FWD P/E ratio of 30.55.