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Time to Buy Micron (MU) Stock as the Chipmaker Boosts Investment?

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Shares of Micron (MU - Free Report) surged Thursday on the back of an announcement that the firm is set to invest more money in its future as it fights to remain a powerful player in its booming industry. The memory-chip maker’s climb helped curb a roughly three-month MU pullback as investors worry that the trade war might negatively impact the company. So is now the time to buy Micron shares? 

Investment

Micron announced on Wednesday that it plans to invest a total of $3 billion at its Manassas, Virginia plant by 2030 in order to increase memory production. “These products support a diverse set of applications such as industrial automation, drones, the IoT (Internet of Things) and in-vehicle experience applications for automotive,” CEO Sanjay Mehrotra said in a statement. “This business delivers strong profitability and stable, growing free cash flow.”

The firm noted that it hopes to create roughly 1,100 new jobs through its spending plan. Plus, Micron hopes to lift its overall capital expenditure into the low 30s as a percentage of revenue over the long haul.

Despite Micron’s impressive stock price growth and recent strength, the company has lagged some of its biggest competitors in terms of investment. The firm’s capital expenditures have averaged about 26% of annual revenue over the last five years. And before investors get nervous that these investments will cut into Micron’s profits, understand that making chips is very expensive and it will likely cost even more as chip sizes shrink further and further.

For example, MU rival Samsung almost doubled its capital expenditures last year. Meanwhile, Intel (INTC - Free Report) —which has seen AMD (AMD - Free Report) encroach on its territory as its next-generation chips experience more delays—expects its capex to hit a record this year. Plus, the Chinese government is projected to continue to heavily support its own semiconductor industry.

Price Movement

Shares of Micron soared over 233% during the last three years, which outpaces its industry’s 132% climb and crushes the S&P 500’s 48% jump. Investors might note that much of these gains come over the last 24 months, with MU stock up over 221%. This climb tops the likes of Amazon (AMZN - Free Report) and nearly doubles Apple (AAPL - Free Report) .

 

Micron’s price performance picture becomes a little worse since the start of the year, with its shares up only 29%. However, this includes a ton of non-company specific turbulence and MU still easily tops its industry and the S&P’s roughly 10% climb. Plus, MU stock has slipped roughly 7% over the last three months, which helps its stock price sit roughly $10 below its $52-week highs, despite Thursday’s gains.

Valuation

Moving on, Micron is also currently trading at 4.8X forward 12-month Zacks Consensus EPS estimates, which represents a significant discount compared to its industry’s 11.3X average, the S&P’s 17.7X, and blows away fellow chip power Nvidia’s (NVDA - Free Report) 37.3X.  Better still, MU stock has traded as high as 6.8X over the last year, with a one-year median of 5.4X.

Micron is trading above its year-long low of 4.1X, but MU still offers outstanding value and looks rather cheap compared to the overall semiconductor industry. 

 

Outlook

Looking ahead, Micron’s fiscal Q4 revenues are projected surge nearly 34% to hit $8.22 billion, based on our current Zacks Consensus Estimate. Meanwhile, the company’s full-year revenues are projected to jump over 48% to reach $30.17 billion. At the other end of the income statement, the firm’s adjusted quarterly earnings are projected to soar over 63% to touch $3.30 per share, while its full-year earnings are expected to skyrocket 136%.

Micron has also seen some positive earnings estimate revision activity over the last 30 days, and is currently a Zacks Rank #3 (Hold). MU also rocks “A” grades for both Value and Growth in our Style Scores system.

Micron’s impressive top and bottom line growth projections, coupled with its new capital expenditure plans and great valuation picture, help show that now might be a great time to buy MU stock on a slight dip.

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