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Omar Venerio
Omar Venerio
Articles (1398) 

David Einhorn's Greenlight Capital Raises Stake in Leading U.S. Memory Chip Maker Micron

August 24, 2015 | About:

In this article, let's take a look at Micron Technology, Inc. (NASDAQ:MU), a $15.74 billion market cap company, which provides semiconductor solutions worldwide. Although the company delivers a negative return of more than 58% year-to-date, David Einhorn (Trades, Portfolio) holds 37.95 million shares, ups his stake by 14% on the quarter. The value of the stake amounts to $714.97 million. The second largest shareholder of the company is Seth Klarman (Trades, Portfolio), with 19.7 million shares, valued at $371.26 billion, held as of the end of the Q2 2015.

More bullish sentiment

Pioneer Investments (Trades, Portfolio) has initiated a new position in the stock with 387,283 shares. Two largest investors as of the end of the second quarter of 2015 were Joel Greenblatt (Trades, Portfolio) and Jean-Marie Eveillard. Both have taken long positions in the stock. Joel Greenblatt (Trades, Portfolio) upped by 89.80% to 4,021,039 shares, and First Eagle Investment (Trades, Portfolio) increased by 29.95% to 2,680,505 shares. Other hedge fund managers like Paul Tudor Jones (Trades, Portfolio), David Dreman (Trades, Portfolio), David Einhorn (Trades, Portfolio) and PRIMECAP Management (Trades, Portfolio) have taken long positions in the stock.

Disappointing results

After reporting bad results, shares plummeted to 18% in a single day. The company reported third-quarter results at the end of June and were below the Street's consensus earnings and revenue estimates. Further, the company also guided for lower revenues, which is very unattractive to investors.

3D memory chip

Intel (NASDAQ:INTC) and Micron agreed on a 3D memory chip architecture. The new technology will be durable and faster and will retain data after being powered off. After working for years on designs, it seems the deal will have a good impact in the future due to its market potential. The key aspect is to know how advanced are both companies about its peers.

"For decades, the industry has searched for ways to reduce the lag time between the processor and data to allow much faster analysis," said Rob Crooke, senior vice president and general manager of Intel's Non-Volatile Memory Solutions Group. "This new class of non-volatile memory achieves this goal and brings game-changing performance to memory and storage solutions."

Relative valuation

In terms of valuation, the stock sells at a trailing P/E of 4.85x, trading at a discount compared to an average of 16.80x for the industry. To use another metric, its price-to-book ratio of 1.26x indicates a discount versus the industry average of 1.36x while the price-to-sales ratio of 1.03x is below the industry average of 1.25x. These metrics indicate that the stock is relatively undervalued and subject to a potential buy. However, Baird analysts downgraded the stock to “Neutral,” while trimming their price target to $15 from $36.

Final comment

Micron should achieve revenue growth using the correct technology while reducing the cost per bit. The past month, the company received a $23 billion buyout offer of $21 a share from Chinese company Tsinghua Unigroup. As a result, the stock boom 12%.

Some analysts consider it is the right moment to buy Micron because of its attractive relative valuation. However, the principal risk is lower-than-expected sales of computers in the future.

Disclosure: Omar Venerio holds no position in any stocks mentioned

About the author:

Omar Venerio
Omar Venerio is a capital markets, derivatives, corporate finance and financial management professor. He is passionate about the stock market and providing independent fundamental research and hedge fund and insider trading-focused investigation.

Rating: 3.0/5 (3 votes)

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Comments

prophetofprofits
Prophetofprofits - 3 years ago    Report SPAM

Wrote this on another MU article, but the CFO bought in the mid-17's recently. Walter Schloss liked strong insider ownership or management buying shares. Despite various execs selling shres its good to see the CFO buying above a potential entry point.

Omar Venerio
Omar Venerio premium member - 3 years ago

Hi Prophetofprofits,

Yes good comment, always insider trading is a good signal for investor.

Thanks!

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