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.
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.