At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." Today, we'll show you whether those bigwigs actually know what they're talking about. To help, we've enlisted Motley Fool CAPS to track the long-term performance of Wall Street's best and worst.
And speaking of the best ...
It's been a sad few days for shareholders of flash memory specialist Micron (Nasdaq: MU ) . On Friday, legendary CEO Steve Appleton died in a plane crash at the Boise, Idaho, airport, ending an 18-year tenure at the helm. For a company like Micron that's struggled to deal with falling DRAM prices this past year, that tragic loss could have been a crippling blow.
But management is moving quickly to respond to the situation. Over the weekend, Micron announced that COO Mark Durcan will step up to assume the CEO's office. Wall Street is giving the move multiple votes of confidence, with Wedbush Morgan reiterating its "outperform" rating on the shares, and ace stock picker Stifel Nicolaus is chiming in as well, with a 20% boost to its price target for the stock (to $9).
Of the two, Stifel is by far the better analyst (indeed, according to our CAPS stats, Stifel is one of Wall Street's literal "Best" stockpickers), but Wedbush is pretty good in its own right, ranking in the top 15% of investors we track. Still, it would appear that investors remain in "show me" mode, subtracting nearly 3% from the company's share price as of this writing. Are they wrong to do so?
Let's go to the tape
For Micron's sake, I wish I could give you an unqualified "yes" in answer to this question. I can't.
Don't get me wrong. Within the solid-state-drive industry, Micron has always been one of my favorite companies. In an industry where scale of production is often key to success, Micron's $8.6 billion annual revenue stream outclasses that at my actual favorite player, SanDisk (Nasdaq: SNDK ) .
In fact, investors in the computer industry may be surprised to learn that Micron is actually a bigger business than Advanced Micro Devices (NYSE: AMD ) , which is more often compared to industry goliath Intel than to Micron. And of course, within the solid-state subset of chip makers, Micron plays in an entirely different league from STEC (Nasdaq: STEC ) and OCZ Technology (Nasdaq: OCZ ) , both of which count their revenues in the (low) hundreds of millions of dollars annually, rather than the billions.
Regardless, the desire to support a company that's going through rough times shouldn't blind us to the numbers that dictate that company's fortunes. Micron's now entering its third year running of declining cash flow and rising capital spending. OCZ's doing even worse, by the way, while SanDisk is taking some hits to its cash flow as well. STEC and AMD, in contrast, appear to be improving.
Free cash flow at Micron today sits at -$626 million, a number that's three-and-a-half times worse than the company's $175 million GAAP loss would suggest, and a worse result than we've seen Micron produce since the darkest days of the financial crisis in 2008. And if you listen to the analysts, this trend might not be drawing to a close anytime soon. Late last year, Goldman Sachs put out a note warning of price weakness in NAND memory -- Micron's second biggest business by revenue and its second most profitable as well.
I've owned Micron myself in the past, and I'm rooting for the company to pull through. I'd like more than anything to tell you that I'm sure it will, that the new CEO will succeed, and that the stock's a buy at these prices. Maybe I'll get that chance soon -- because Micron is scheduled to hold a sit-down with analysts this Friday, to talk over where it goes from here and to update investors on "current market conditions" in its DRAM and NAND businesses.
For now, however, and based on the way the trends in cash generation are looking, I can't say anything more for the stock than that it may be a hold. Fingers crossed for better news on Friday.
Not interested in gambling on a turnaround in the topsy-turvy semiconductor market? Can't say as I blame you. Perhaps we could interest you in a few rock-solid dividend stocks instead. Read our free Fool report today -- but act quick. It won't be available at this price forever.