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Here's Why Micron Technology Is a Good Buy at the Current Valuation

August 12, 2014 | About:
jaggom

jaggom

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Micron Technology (MU) has been benefiting from improving trends in the memory industry. The company's performance has been remarkable, and its share price has appreciated nicely over the past few years. Moreover, looking ahead, investors should continue having faith in Micron, as it looks well-positioned to deliver growth in the long run. Let's see how.

Improving end-markets

The computing and networking business of Micron witnessed a robust third quarter characterized by improving demand and favorable pricing. The PC market seems to be favorable in comparison to previous industry forecast with constrained supply. A better-than-expected sector performance is due to an increase in demand for corporate refresh on desktop and notebooks. There’s also an increasing demand for server DRAM. There’s robust demand for Micron’s networking products primarily driven by the LTE rollout in China and other emerging markets.

The graphics business of Micron also recorded strong shipments and revenue in the quarter, primarily driven by strong sales of GDDR5 products through PEM penetration in both PC and console gaming. Micron continues to drive innovation in technology with products such as DDR4 for servers and high-performance desktop applications, entrance of GDDR5 into high-performance gaming PCs and workstation graphics; and with the launch of Hybrid Memory Cube for high-performance solutions in networking and computing.

The U.S. chipmaker continues to focus on its mobile business for generating maximum returns as against towards market share growth only.

The automotive segment is benefiting from memory content growth powered by both infotainment and advanced driver assistance systems. Micron’s commitment to the unique needs of this market in areas such as quality, reliability, product longevity and service has allowed it to maintain the number one position in the market.

Tailwinds ahead

The industrial and multi-market category witnessed robust double-digit growth quarter-over-quarter partially driven by the integration of connectivity and emerging machine-to-machine usage with industrial applications. The connected home segment for Micron also saw strong performance across all its product categories. There’s also robust sales growth in eMMC for embedded applications.

The dramatic evolution of Micron’s business to more systems and subsystem-level solutions is anticipated to continue to be an increasing part of the new memory paradigm. Micron continues to invest in its test assembly and supply chain capabilities to support an expanding set of customer requirements with its business continuously expanding into diversified end markets such as enterprise, networking, mobile, automotive and gaming.

Moreover, Micron is enjoying the benefits of many new applications for its chips beyond its original franchise in personal computers. It currently provides technology for smartphones, server systems and cars.

Valuation

According to Yahoo Finance, the trailing P/E and forward P/E ratios of 12.63 and 9.50 respectively depicts improvement in the company's operations and lowered costs. Moreover, the P/E ratio is far better than the industry’s average of 17.05. The PEG ratio of 0.51 is better than the industry’s average of 0.53 and is impressive plus represents robust growth. The profit margin of 21.34% is eye-catching.

The revenue per share and diluted EPS of 12.79 and 2.48, respectively, reflect promising returns for investors. Further, the earnings per share is ahead of the industry’s average. The quarterly revenue growth of 97.60% is outstanding and way above the industry’s average of 0.00%. The current ratio of 1.88 signifies robust current assets of Micron. Overall, investors are advised to invest into the company stock given its strengths and an impressive CAGR of 19.53% for the next 5 years per annum, above the industry’s average of 15.72%, and expect promising long-term returns.


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