Micron Has a Great Quarter -- Again

If you're a long-term investor in Micron Technology (NASDAQ: MU  ) , odds are good that you're feeling pretty smug right now. Since their 2011 lows, Micron shares have increased sixfold, and year to date the stock has been a superb performer, returning 43.72% against a Nasdaq up just 4.59%. After such a stupendous run, Micron went ahead and reported what could only be described as another "great" quarter. With that in mind, is "yet another great quarter" enough to drive further upside from current levels?

Breaking it down
For fiscal Q3, the most recently ended quarter, Micron reported non-GAAP earnings per share of $0.79, beating consensus by $0.09, on revenue of $3.98 billion, beating consensus by $90 million. On top of that, the company guided to a sales range of $4 billion to $4.2 billion, pretty much in line with a $4.06 billion consensus.

If we dig a bit deeper into the guidance, management is calling for total bit growth in DRAM (69% of the company's business in the quarter) to be up in the low single digits, with cost per bit down in the low single digits. NAND, on the other hand, is set to see low- to mid-teens bit growth, with flat cost per bit. Average selling prices for DRAM are set to be flat, while NAND is expected to be down by low- to mid-single digits.

As far as operating expenses go, sales, general, and administrative expenses came in at $174 million in fiscal Q3, and guidance calls for a range of $175 million to $185 million in fiscal Q4. Research and development should also be up from $349 million to somewhere in the range of $355 million to $365 million in fiscal Q3 and Q4, respectively. These increases are perfectly fine to support continued technology innovation and, more importantly, revenue growth. 

What now?
As it stands, current analyst consensus for the year calls for $16.08 billion in sales and $3.10 per share in non-GAAP earnings. The stock currently trades for just a smidge over 10 times this year's expected earnings. With this quarter's beat of $0.09 a share, and with guidance that should lead to a slight upward revision in consensus revenue and earnings per share, the stock doesn't exactly look expensive.

That said, despite a huge jump in revenue and earnings this year, current sell-side consensus calls for the company to see more modest growth of about 6.80% next year, with earnings per share moving 5.5%  higher to $3.27.

The good news is that the stock probably has some more room to run, particularly if it can see multiple expansion to 11-12 times fiscal 2015 earnings (implying a share price of $36 to $39). Further, given that Micron is likely to beat current-year consensus, next year's estimates could move up, too.

However, keep in mind that both DRAM and NAND are still essentially commodities (though some may rightly argue that capital expenditure barriers and, increasingly, R&D barriers run counter to that assertion), so multiple expansion may be limited beyond that.

Foolish bottom line
Micron investors have plenty to be excited about, and even if the stock remains priced at a fairly low multiple, modest multiple expansion against what will probably be slightly higher fiscal year 2015 estimates could drive a fair value of $36-$39, or a 15%-25% gain from current levels. The best part of this run is probably over, but there's still some value here for new money, particularly if you can get the shares on a pullback.

Missed the Micron boat? This small tech stock could also see huge long-term gains
Apple
recently recruited a secret-development "dream team" to guarantee that its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are even claiming that its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts that 485 million of these devices will be sold per year. But one small company makes this gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and to see Apple's newest smart gizmo, just click here!


Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3005117, ~/Articles/ArticleHandler.aspx, 10/25/2014 8:00:11 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement