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Is the Time Ripe to Build Position in Micron Technology?
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The technology space continues to be investors’ favorite due to its dynamic nature. This field is expected to grow faster than ever before. Therefore, if you invest right, you can reap the benefits over time. Tech companies will continue to transform our world with each passing year. So, if you don’t want to be left behind, make sure you’re investing in quality tech stocks.
Below we have evaluated one technology company that has demonstrated remarkable share price performance so far this year. Micron Technology, Inc. (MU - Free Report) generated high returns for investors in the year-to-date period and has the potential to exceed expectations in the days ahead.
The stock gained approximately 26.1%, outperforming the Zacks categorized Electronic-Semiconductor industry’s return of just 7.1%.
Let’s look at the reasons behind Micron’s solid momentum.
What’s Driving the Stock?
The main reason behind the optimism surrounding the stock is improving prices for DRAM and NAND chips, which makes investors confident about Micron’s growth. Per various sources, DRAM and NAND prices improved primarily due to a better product mix optimization and higher-than-expected demand for PCs, servers and mobiles.
The benefit from improved pricing is well reflected in the company’s last quarterly results. The company’s second-quarter fiscal 2017 revenues not only jumped 58.4% on a year-over-year basis, but also surpassed the Zacks Consensus Estimate. Most importantly, the figure witnessed a 21% increase in DRAM average selling prices (ASP) during the quarter.
The company’s fiscal second-quarter adjusted earnings per share (excluding the impact of one-time items but including stock-based compensation expense) of 77 cents came in line with the Zacks Consensus Estimate and also compared favourably with the year-ago quarter’s loss of 5 cents.
An encouraging top- and bottom-line guidance for the fiscal third quarter, way above the respective Zacks Consensus Estimate, also helped in boosting investors’ confidence about the company’s future prospects.
Upward Estimate Revisions
In the last 30 days, the Zacks Consensus Estimate for the third quarter and fiscal 2017 witnessed upward revisions. For the fiscal third quarter, the Zacks Consensus Estimate is currently pegged at $1.37, up 69 cents from earnings of 68 cents projected 30 days ago. The Zacks Consensus Estimate for fiscal 2017 is currently pegged at $3.67 cents compared with $2.33 projected 30 days ago.
Other Driving Factors
It should be noted that Micron has been expanding in the SSD storage market due to the decline in the PC market. Notably, SSDs are faster and more energy efficient than traditional hard drives. These are also used in servers due to lower latency, thereby facilitating faster response to real-time applications.
Notably, the company has an interesting partnership with Seagate (STX - Free Report) . Under the agreement, Micron supplies a significant portion of Seagate’s NAND requirement. In return, Seagate shares its SAS SSD technology with Micron – a key technology that the latter lacks in the enterprise SSD market. We believe that this deal will expand Micron’s high-value enterprise SSD portfolio.
Additionally, the acquisition of Inotera in 2016 is anticipated to be accretive to Micron’s DRAM gross margin, earnings per share and free cash flow. According to the company, the acquisition will also have some operational benefits, leading to efficient management of investment levels and cadence followed by alignment with global manufacturing operations.
The company anticipates the aforementioned factors to also have a positive impact on its fiscal third-quarter results.
Bottom Line
Looking at the improving selling prices for DRAM and strategic initiatives of expanding in the SSD market, we consider that Micron is one such technology stock which is worthy of remaining in investors’ portfolio.
On the valuation front too, the stock looks attractive. The company currently trades at a forward P/E multiple of 7.5x, significantly lower than the Zacks categorized Electronics-Semiconductor industry average of 14.6x. The ratio, which is obtained by dividing a stock’s current market price with its historical or estimated earnings, measures how much an investor needs to shell out per dollar of earnings. Therefore, lower the P/E of a stock, the better for a value investor.
The stock has grabbed the spotlight with striking performances on the back of solid earnings results and robust growth projections. Keeping this in mind, we believe that investing in this stock will yield strong returns in the near term.
A couple of other stocks worth considering in the broader technology sector are Applied Optoelectronics, Inc. (AAOI - Free Report) and Broadcom Ltd. (AVGO - Free Report) , both sporting a Zacks Rank #1. Applied Optoelectronics and Broadcom have an expected long-term EPS growth rate of 18.3% and 13.6%, respectively.
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Is the Time Ripe to Build Position in Micron Technology?
The technology space continues to be investors’ favorite due to its dynamic nature. This field is expected to grow faster than ever before. Therefore, if you invest right, you can reap the benefits over time. Tech companies will continue to transform our world with each passing year. So, if you don’t want to be left behind, make sure you’re investing in quality tech stocks.
Below we have evaluated one technology company that has demonstrated remarkable share price performance so far this year. Micron Technology, Inc. (MU - Free Report) generated high returns for investors in the year-to-date period and has the potential to exceed expectations in the days ahead.
The stock gained approximately 26.1%, outperforming the Zacks categorized Electronic-Semiconductor industry’s return of just 7.1%.
Let’s look at the reasons behind Micron’s solid momentum.
What’s Driving the Stock?
The main reason behind the optimism surrounding the stock is improving prices for DRAM and NAND chips, which makes investors confident about Micron’s growth. Per various sources, DRAM and NAND prices improved primarily due to a better product mix optimization and higher-than-expected demand for PCs, servers and mobiles.
The benefit from improved pricing is well reflected in the company’s last quarterly results. The company’s second-quarter fiscal 2017 revenues not only jumped 58.4% on a year-over-year basis, but also surpassed the Zacks Consensus Estimate. Most importantly, the figure witnessed a 21% increase in DRAM average selling prices (ASP) during the quarter.
The company’s fiscal second-quarter adjusted earnings per share (excluding the impact of one-time items but including stock-based compensation expense) of 77 cents came in line with the Zacks Consensus Estimate and also compared favourably with the year-ago quarter’s loss of 5 cents.
An encouraging top- and bottom-line guidance for the fiscal third quarter, way above the respective Zacks Consensus Estimate, also helped in boosting investors’ confidence about the company’s future prospects.
Upward Estimate Revisions
In the last 30 days, the Zacks Consensus Estimate for the third quarter and fiscal 2017 witnessed upward revisions. For the fiscal third quarter, the Zacks Consensus Estimate is currently pegged at $1.37, up 69 cents from earnings of 68 cents projected 30 days ago. The Zacks Consensus Estimate for fiscal 2017 is currently pegged at $3.67 cents compared with $2.33 projected 30 days ago.
Other Driving Factors
It should be noted that Micron has been expanding in the SSD storage market due to the decline in the PC market. Notably, SSDs are faster and more energy efficient than traditional hard drives. These are also used in servers due to lower latency, thereby facilitating faster response to real-time applications.
Notably, the company has an interesting partnership with Seagate (STX - Free Report) . Under the agreement, Micron supplies a significant portion of Seagate’s NAND requirement. In return, Seagate shares its SAS SSD technology with Micron – a key technology that the latter lacks in the enterprise SSD market. We believe that this deal will expand Micron’s high-value enterprise SSD portfolio.
Additionally, the acquisition of Inotera in 2016 is anticipated to be accretive to Micron’s DRAM gross margin, earnings per share and free cash flow. According to the company, the acquisition will also have some operational benefits, leading to efficient management of investment levels and cadence followed by alignment with global manufacturing operations.
The company anticipates the aforementioned factors to also have a positive impact on its fiscal third-quarter results.
Bottom Line
Looking at the improving selling prices for DRAM and strategic initiatives of expanding in the SSD market, we consider that Micron is one such technology stock which is worthy of remaining in investors’ portfolio.
On the valuation front too, the stock looks attractive. The company currently trades at a forward P/E multiple of 7.5x, significantly lower than the Zacks categorized Electronics-Semiconductor industry average of 14.6x. The ratio, which is obtained by dividing a stock’s current market price with its historical or estimated earnings, measures how much an investor needs to shell out per dollar of earnings. Therefore, lower the P/E of a stock, the better for a value investor.
Hence, we believe that there is still much momentum left in this Zacks Rank #1 (Strong Buy) stock, which is quite evident from its VGM Style Score of “A” and long-term earnings growth rate of 10%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The stock has grabbed the spotlight with striking performances on the back of solid earnings results and robust growth projections. Keeping this in mind, we believe that investing in this stock will yield strong returns in the near term.
A couple of other stocks worth considering in the broader technology sector are Applied Optoelectronics, Inc. (AAOI - Free Report) and Broadcom Ltd. (AVGO - Free Report) , both sporting a Zacks Rank #1. Applied Optoelectronics and Broadcom have an expected long-term EPS growth rate of 18.3% and 13.6%, respectively.
Looking for Ideas with Even Greater Upside?
Today's investment ideas are short-term, directly based on our proven 1 to 3 month indicator. In addition, I invite you to consider our long-term opportunities. These rare trades look to start fast with strong Zacks Ranks, but carry through with double and triple-digit profit potential. Starting now, you can look inside our home run, value, and stocks under $10 portfolios, plus more. Click here for a peek at this private information >>