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Micron (MU) Witnesses a Splendid 2017: What's Driving It?
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The technology space continues to be investors’ favorite due to its dynamic nature. This field is anticipated to grow faster than ever before. Therefore, if you invest right, you can reap the benefits over time.
Below we have evaluated one technology company that has demonstrated remarkable share price performance this year so far. Micron Technology, Inc. (MU - Free Report) has generated significant returns for investors in the year-to-date period and has the potential to exceed expectations in the days ahead as well.
The stock has soared a whopping 91.8% in the year so far, significantly outperforming the S&P 500’s gain of just 19.3%.
Let’s check out the reasons for this impressive surge in share price and consider why Micron will continue its momentum in the next year as well.
Improved DRAM Demand & Pricing
The main reason behind the optimism surrounding the stock is improved prices for DRAM. Notably, DRAM generates majority of the company’s revenues and in fiscal 2017 it contributed approximately 64%. The company witnessed a year-over-year surge of 80% in the fiscal 2017 DRAM revenues.
Increased pricing is mainly driven by better product-mix optimization and higher-than-expected demand for PCs, servers and mobiles. DRAMeXchange projects that demand for DRAM will jump 20.6% in 2018 from an estimated increase of 19.6% in 2017. The primary driver is expected to be higher storage demand from smartphones and servers.
Smartphones witnessed an increase of 33.4% in DRAM content this year, to an average of 3.2 GB per device. As smartphone original equipment manufacturers (OEMs) plan to launch devices with higher capacity and more demanding applications like AR and AI, demand for DRAM is likely to grow much faster.
Moreover, server DRAM demand is anticipated to remain strong as Cloud Data-Center customers seek innovative solutions to reduce their workload. The high-density modules based on advanced manufacturing nodes have come to the market, urging server OEMs to overhaul and shift to new technology for better results. This also provides significant growth opportunity for Micron.
Tumbling NAND Prices to Have Lesser Impact
The last two weeks didn’t go well for majority of the memory chip makers after analyst Shawn Kim of Morgan Stanley noted that NAND flash memory chip prices are at peak levels, but may start declining from the beginning of 2018 due to a supply glut. Investors seemed worried about Micron too as it also sales NAND chips.
However, we believe the fall in NAND prices will have the least impact on Micron’s financials due to its less exposure in the segment. Various analysts also believe the company is well positioned to lower its NAND production costs, through which it can safeguard margins and bottom-line results from loss of revenues due to declining prices.
Attractive Valuation
On the valuation front too, the stock looks attractive. The company currently trades at a forward P/E multiple of 5.5x, significantly lower than the industry average of 16x. 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 there is still much momentum left in this Zacks Rank #3 (Hold) stock, which is quite evident from its VGM Style Score of A and long-term earnings growth rate of 10%.
Broadcom, NVIDIA and Intel have expected long-term EPS growth rates of 13.8%, 10.8% and 8.4%, respectively.
Zacks Editor-in-Chief Goes ""All In"" on This Stock
Full disclosure, Kevin Matras now has more of his own money in one particular stock than in any other. He believes in its short-term profit potential and also in its prospects to more than double by 2019. Today he reveals and explains his surprising move in a new Special Report.
Image: Bigstock
Micron (MU) Witnesses a Splendid 2017: What's Driving It?
The technology space continues to be investors’ favorite due to its dynamic nature. This field is anticipated to grow faster than ever before. Therefore, if you invest right, you can reap the benefits over time.
Below we have evaluated one technology company that has demonstrated remarkable share price performance this year so far. Micron Technology, Inc. (MU - Free Report) has generated significant returns for investors in the year-to-date period and has the potential to exceed expectations in the days ahead as well.
The stock has soared a whopping 91.8% in the year so far, significantly outperforming the S&P 500’s gain of just 19.3%.
Let’s check out the reasons for this impressive surge in share price and consider why Micron will continue its momentum in the next year as well.
Improved DRAM Demand & Pricing
The main reason behind the optimism surrounding the stock is improved prices for DRAM. Notably, DRAM generates majority of the company’s revenues and in fiscal 2017 it contributed approximately 64%. The company witnessed a year-over-year surge of 80% in the fiscal 2017 DRAM revenues.
Increased pricing is mainly driven by better product-mix optimization and higher-than-expected demand for PCs, servers and mobiles. DRAMeXchange projects that demand for DRAM will jump 20.6% in 2018 from an estimated increase of 19.6% in 2017. The primary driver is expected to be higher storage demand from smartphones and servers.
Smartphones witnessed an increase of 33.4% in DRAM content this year, to an average of 3.2 GB per device. As smartphone original equipment manufacturers (OEMs) plan to launch devices with higher capacity and more demanding applications like AR and AI, demand for DRAM is likely to grow much faster.
Moreover, server DRAM demand is anticipated to remain strong as Cloud Data-Center customers seek innovative solutions to reduce their workload. The high-density modules based on advanced manufacturing nodes have come to the market, urging server OEMs to overhaul and shift to new technology for better results. This also provides significant growth opportunity for Micron.
Tumbling NAND Prices to Have Lesser Impact
The last two weeks didn’t go well for majority of the memory chip makers after analyst Shawn Kim of Morgan Stanley noted that NAND flash memory chip prices are at peak levels, but may start declining from the beginning of 2018 due to a supply glut. Investors seemed worried about Micron too as it also sales NAND chips.
However, we believe the fall in NAND prices will have the least impact on Micron’s financials due to its less exposure in the segment. Various analysts also believe the company is well positioned to lower its NAND production costs, through which it can safeguard margins and bottom-line results from loss of revenues due to declining prices.
Attractive Valuation
On the valuation front too, the stock looks attractive. The company currently trades at a forward P/E multiple of 5.5x, significantly lower than the industry average of 16x. 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 there is still much momentum left in this Zacks Rank #3 (Hold) stock, which is quite evident from its VGM Style Score of A and long-term earnings growth rate of 10%.
Some other stocks worth considering in the broader technology sector include Broadcom Limited (AVGO - Free Report) , NVIDIA Corporation (NVDA - Free Report) and Intel Corporation (INTC - Free Report) , all sporting Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Broadcom, NVIDIA and Intel have expected long-term EPS growth rates of 13.8%, 10.8% and 8.4%, respectively.
Zacks Editor-in-Chief Goes ""All In"" on This Stock
Full disclosure, Kevin Matras now has more of his own money in one particular stock than in any other. He believes in its short-term profit potential and also in its prospects to more than double by 2019. Today he reveals and explains his surprising move in a new Special Report.
Download it free >>