World leader in innovative memory solutions Micron Technology, Inc. (MU), in Boise, Idaho, provides memory and storage technologies, such as DRAM, NAND, NOR, and 3D XPoint memory, under the Micron and Crucial brand names.  MU’s share price has dipped 13.5% over the past five days due to Morgan Stanley’s (MS) release of its industry report titled, “Memory – Winter Is Coming”, which stated that the high price environment for memory suppliers would likely begin to reverse next year.

While the report suggested that the strong demand that has contributed to a semiconductor chip shortage globally has begun to slow, we believe MU’s industry-leading 1α DRAM and 176-layer NAND should continue to see long-term demand across data centers and edge devices. Also, MU’s record market and product revenues and significant sequential earnings improvement in the last reported quarter have raised investors’ hopes for the stock.

Closing yesterday’s session at $70.92, MU is trading 26.9% below its 52-week high of $96.96.

Here is what we think could shape MU’s performance in the coming months:

Bullish Analyst Sentiment

Analysts expect MU’s EPS to increase 241% year-over-year to $2.66 in the next quarter, ending November 2021. Its consensus EPS estimates indicate a 111.3% increase in the current year and a 90.1% increase next year. In addition, MU has an impressive earnings surprise history; it beat Street EPS estimates in each of the trailing four quarters.

A $8.21 billion consensus revenue estimate for the current quarter, ending August 2021, indicates a 35.6% improvement year-over-year. Also, its revenue is estimated to increase 29% year-over-year to $27.65 billion in 2021.

Launch of Breakthrough Solutions

On July 29, MU launched the world’s first 176-layer NAND Universal Flash Storage (UFS) 3.1 mobile solution to provide rich, seamless multimedia experiences in high-end and flagship phones. The launch follows the company’s PCIe Gen4 solid-state drives with 176-layer NAND, which were unveiled in June. MU’s industry-pioneering advanced technology should help the company offer unparalleled performance and a more responsive mobile experience to its customers.

This month, the company introduced the Crucial P5 Plus PCIe SSDs to offer internal Gen4 storage options to gamers, professionals, and creatives requiring high-performance storage products. The growing demand for high-performance storage solutions to tackle data-intensive workloads, including content creation, gaming, and other applications, should boost MU’s Crucial P5 Plus sales.

Sustainable Financing

In May, MU closed sustainability-linked credit facilities that totaled approximately $3.7 billion. This reinforces the company’s 2030 environmental goals and its commitment to achieving a positive, sustainable impact. The transaction positions MU as a top-five corporate sustainability-linked credit facility issuer in the U.S. and strengthens its leadership in sustainable financing.

Solid Financials and Profitability

MU’s non-GAAP revenue grew 36.5% year-over-year to $7.42 billion in its fiscal third quarter, ended June 30, 2021. The company’s gross margin amounted to $3.19 billion, representing a 76.6% increase year-over-year. Its operating income came in at $2.36 billion, up 141% from the same period last year. In addition, its non-GAAP net income was  $2.17 billion for this quarter, versus  $941 million in the prior-year period. Its  EPS rose 129.3% from its  year-ago value to $1.88 over this period.

The company’s 43.8% trailing-12-month EBITDA margin is 198.8% higher than the 14.7% industry average. Furthermore,  the company’s trailing-12-month net income margin and ROA of 16.2% and 7.4%, respectively, compare favorably with the industry averages. Also, its 6.6% trailing-12-month ROTC  is 33.3% higher than the 5% industry average.

POWR Ratings Reflect Promising Outlook

MU has an overall B rating, which translates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. MU has a B Value grade. This is consistent with the stock’s 11.82 P/E ratio, which is 52% lower than the 24.62 industry average.

Also, in terms of Quality Grade, MU has a B. This justifies the company’s higher-than-industry EBITDA margin.

Click here to see the additional POWR Ratings for MU (Sentiment, Stability, Growth, and Momentum).

The stock is ranked #40 of 99 stocks in the B-rated Semiconductor & Wireless Chips industry.

Click here to checkout our Semiconductor Industry Report for 2021

Bottom Line

MU’s shares declined  recently after Morgan Stanley forecast a fall in memory-chip prices in the coming months because  memory supply is expected to outstrip demand. But substantial demand for the company’s premier NAND and DRAM technologies and its strategic investments in developing new products should solidify its position in the chip market and help the stock rebound in the near term. So, we think it could be wise to scoop up the stock now.

How does Micron (MU) Stack Up Against its Peers?

While MU has an overall POWR Rating of B, check out these other stocks within the Semiconductor & Wireless Chips industry with A (Strong Buy) ratings: ChipMOS Technologies Inc. (IMOS), United Microelectronics Corp. (UMC), and STMicroelectronics N.V. (STM).

MU shares fell $0.57 (-0.80%) in premarket trading Monday. Year-to-date, MU has declined -6.49%, versus a 19.64% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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