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Bull of the Day: Micron Technology, Inc. (MU)

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Micron Technology, Inc. (MU - Free Report) beat its already-raised outlook for its second quarter fiscal 2021 results on March 31. Wall Street drove the stock to new highs following the release as the memory chip maker looks poised to grow amid a global chip shortage.

Memory Comeback

Micron is one of the largest makers of memory chips in the world. As a quick primer, DRAM chips are featured within PCs and data centers, while NAND, or flash memory, is made for storing data and can be found in mobile phones, other devices, and elsewhere.

The Boise, Idaho firm’s stock has outperformed the semiconductor industry over the last decade, but the memory space is even more cyclical in nature than the broader chip market and heavily impacted by pricing. Luckily, the company hit its cyclical bottom in the first quarter of last year.

MU’s sales had fallen for five straight periods. But it has bounced back over the past 12 months and it posted blowout Q2 FY21 results on March 31. Micron’s Q2 revenue jump 30% to $6.24 billion and its adjusted earnings skyrocketed 117% to $0.98 per share for the period ended on March 24.

Micron’s CEO also appeared to adequately address Wall Street’s worries about a global chip shortage and its own capital spending. “The team is doing everything we can to meet customer demand despite the challenges of the pandemic, non-memory component shortages in the electronics industry… "

"CapEx of approximately $9 billion (FY21), this is really almost the highest CapEx that the company has spent in its history and we are putting that into positioning us well for the future,” Sanjay Mehrotra told analysts on its earnings call.

What’s Next?

Micron’s 30% sales growth last quarter was its strongest since Q4 FY18 and extended its streak to four straight quarters of double-digit revenue expansion. Better yet, the firm highlighted its ability to expand within and benefit from the expansion of secular growth areas of technology, including 5G, AI, data centers, and more.

Moving forward, MU’s adjusted third quarter earnings are projected to soar another 95%, based on current Zacks estimates, to reach $1.60 a share on the back of 30% stronger sales that would see it pull in $7.1 billion. More broadly, the company’s full-year FY21 revenue is expected to climb 25% to $26.8 billion to help lift its adjusted EPS figure by 94%.

Peeking further ahead, the memory chip maker’s fiscal 2022 revenue is projected to climb another 32% to come in at $35.3 billion. Plus, MU’s adjusted earnings are projected to soar a staggering 99% higher in fiscal 2022. These projections would represent a strong return to growth after two down years and help FY22’s sales total come in well above FY18’s $30.4 billion.

The nearby chart showcases how much Micron’s bottom-line outlook has improved, with its FY21 consensus up 41% in the last 60 days and FY22 43% higher. MU’s bottom-line outlook has climbed twice recently, once after management upped its guidance on March 3 and after it reported its actual Q2 results.

MU’s rising EPS outlook helps it land a Zacks Rank #1 (Strong Buy) right now, alongside an “A” grade for Momentum in our Style Scores system.

Other Fundamentals

Micron’s strong report and guidance sent it to new highs earlier this month. The recent run is part of a resurgence that began in August 2020 and helped it break out of a two-year slump. This is hardly uncommon for the memory chip stock that’s been prone to prolonged climbs, followed by sideways movement or downturn, as the nearby chart stretching back over the last decade highlights.

MU shares have now skyrocketed roughly 100% since mid-August to hit all-time highs of over $96 a share on April 12. This run has seen it crush Nvidia’s (NVDA - Free Report) 40% climb and its industry’s 37%. Luckily, the stock has cooled off a bit and it closed regular trading Thursday at $90.27 a share, or around 6% below its records.

Micron also hovers just below neutral RSI levels at 49. This theoretically provides the stock ample runway before it reaches 70, or the level that is often regarded as overbought.

Furthermore, MU trades at a 15% discount to its own year-long highs in terms of forward 12-month sales and at a 50% discount to forward earnings. This is impressive considering that MU stock is just 6% below its all-time highs.

The stock has also historically traded at a significant discount to the Semiconductor industry, which makes sense given the memory space’s more commodity-like standing within chips. At 10.5X forward 12-month sales, MU currently provides huge value compared to the Semiconductor industry’s 20.6X.

Bottom Line

Along with Micron’s Zacks Rank #1 (Strong Buy) ranking, 14 of the 21 brokerage recommendations Zacks has are “Strong Buys,” with three more “Buys,” and none below a “Hold.” Therefore, investors might want to consider the memory chip stock even though it has already soared 100% in the last year, given its growth outlook and more.

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