Back to top

Analyst Blog

Zacks Equity Research

Micron (MU) Well Placed on the Growth Track: Here's Why

WDC STX MU JBL

Trades from $3

Micron Technology Inc. (MU - Free Report) is on a growth trajectory, gathering momentum from its positive earnings surprise history and strong fundamentals. Also, its shares have posted a strong six-month return of 67.5% and a year-to-date return of 23.6%.

The company posted a positive earnings surprise in the last four quarters with an average surprise of 31.5%. The company has a market cap of $18.29 billion with long-term earnings growth expectation of 10%.

What’s Behind the Continued Momentum?

The company released better-than-expected fourth-quarter fiscal 2016 results on Oct 4, 2016. Adjusted loss per share (excluding the impact of one-time items) of 5 cents was narrower than the Zacks Consensus Estimate of a loss of 10 cents.

Though Micron’s revenues in the quarter decreased 10.6% on a year-over-year basis to $3.217 billion, it surpassed the Zacks Consensus Estimate of $3.110 billion. Also, reported revenues increased on a quarter-over-quarter basis (up 11%), primarily due to pricing improvement in the DRAM memory chip market and recovery in the PC market.

The company provided an encouraging first-quarter 2017 guidance. For the first quarter of fiscal 2017, Micron expects revenues in the range of $3.55 billion to $3.85 billion. The Zacks Consensus Estimate is pegged at $3.724 billion. The company expects earnings per share in the range of 13 cents to 21 cents. The Zacks Consensus Estimate is pegged at earnings of 17 cents.

Micron offers both DRAM and NAND products. DRAM chips are a key component in PCs, while NAND flash chips are critical for portable electronic devices. The improving prices for DRAM and NAND chips make us optimistic about the company’s near-term performance. As per various sources, DRAM and NAND prices have improved primarily due to a better product mix optimization and stronger-than-expected demand for PCs, servers and mobiles.

Furthermore, the company is expected to benefit from strong demand for NAND flash memory chips, which is used in smartphones and tablets. Driven by new tablet products and greater adoption of solid state drive (SSD), total demand in the NAND flash memory industry could surpass manufacturing capacity, leading to a periodic shortage and higher pricing in the near term.

Adding to the woes, Micron has been expanding in the SSD storage market due to the decline in the PC market. SSDs are faster and more energy efficient than traditional hard drives. SSDs are also being used in servers due to lower latency, which in turn facilitates faster response to real-time applications.

In an effort to expand its SSD product portfolio, in Feb 2015, the company partnered with Seagate Technology plc (STX - Free Report) to supply a significant portion of the latter’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 the deal will expand Micron’s high-value enterprise SSD portfolio.

Going forward, the acquisitions of Elpida and Rexchip (now known as Micron Memory Japan, Inc. and Micron Memory Taiwan Co., Ltd., respectively) will increase Micron’s traction in the memory market. Moreover, it added Apple Inc. to its customer roster, which should continue to drive growth.

Micron is positive about the product launches and growing demand, particularly that of SSD products. The company has been constantly innovating in memory technologies, spanning DRAM, NAND and NOR Flash memory solutions, which are being widely used in the latest mobile computing devices as well as in consumer, networking and embedded products.

However, Western Digital Corp. (WDC - Free Report) , a key player in the NAND space, could increase competition in the industry.

Currently, Micron has a Zacks Rank #1 (Strong Buy). Another better-ranked stock in the technology sector is Jabil Circuit Inc. (JBL - Free Report) , sporting a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here

Jabil Circuit expects long term earnings per share growth rate of 12%.

 

Confidential from Zacks

Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>