Micron Technology (MU, Financial) and Intel (INTC, Financial) are two very different companies and face very different situations when it comes to earnings and growth. From 2011 to 2013, Micron's earnings were crushed and turned negative but have steadily climbed up over time, while Intel has had growing earnings that have been strong and steady over the last six years after facing a sharp decline from 2008 to 2009. Intel's earnings have stayed consistent since their earnings recovered from 41 cents in September 2009 to $2.30 in September 2011.
Intel EPS 2005 to 2015
2005 - $1.40
2006 - $0.85
2007 - $1.17
2008 - $0.92
2009 - $0.77
2010 - $2.01
2011 - $2.39
2012 - $2.13
2013 - $1.88
2014 - $2.33
2015 - $2.34
Micron Technology EPS 2005 to 2015
2005 - $0.12
2006 - $0.62
2007 - $(-)0.91
2008 - $(-)2.67
2009 - $(-)1.25
2010 - $1.75
2011 - $(-)0.19
2012 - $(-)1.12
2013 - $1.51
2014 - $3.08
2015 - $2.45
When you compare the two company's earnings history, Intel's earnings are only a little more predictable than Micron's. In the last 10 years, Micron's EPS has been negative six out of the 10 years, in which the biggest drop was in 2008, when the company went from losing 91 cents a share in 2007 to losing a massive $2.67 per share in 2008. Intel's earnings, on the other hand, have been positive all 10 years and overall have been in an upward trend since 2010. Micron's future is harder to predict, as the company is too unstable. While the company might have some merit, lack of strong earnings or a consistent upward trend shows that Micron's future earnings would be impossible to predict with any amount of accuracy.
Currently Intel is trading at $32.94 a share against earnings of $2.33 a share. If you paid $32.94 for a share of Intel, your initial rate of return would be 7% ($2.33 / $32.94 = 7.00%). Micron is currently trading at $15.59 a share against earnings of $2.48 a share. If you paid $15.59 for a share of Micron, your initial rate of return would be 15.9%. Investors must decide if the high initial rate of return that Micron has is worth the uncertainty and volatility that comes with its earnings.
In 2005 Intel had EPS of $1.40, while Micron had EPS of 12 cents. Ten years later in 2015, Intel has an EPS of $2.34 and Micron an EPS of $2.45. For Intel you get an annual compounding rate of 5.27% versus Micron's 35.21% compounded. From 2010 to 2015, Intel's grew 3.09% compounded annually, while Micron's earnings grew by 6.96%. These two numbers tell you several different things about each company. The first is that Intel has had a lower rate of earnings growth in the last five years than it did in the 10-year period from 2005 to 2015. The question that needs to be asked is: What caused this change? How did Intel's business economics change? The questions that need to be asked for Micron's surge is what caused the earnings growth in the last five years after they suffered so much volatility? What changed in the company?
From 2005 to 2015, Intel's net income grew from $8.664 billion to $11.47 billion, or at annual compounding rate of 2.85%. In the same time period, Micron's net income went from $95.80 million to $2.899 billion, growing 40.63% annually for the last 10 years. In 2014 Intel had shareholders' equity of $8.59 a share and net earnings of $2.47 a share. This means that each share is yielding a 28.75% return on shareholders' equity ($2.47 / $8.59 = 28.75%), of which approximately 61% was retained by the company and 39% was to be paid out as a dividend to the shareholders.
When you buy your Intel share with a per share equity value of $8.59, you can calculate that your investment would effectively earn a 28.75% return. You can also figure that your 28.75% return is divided into two different types of yields. One yield would represent 61% of the 28.75% return on shareholders' equity and would be retained by the company. This amount is equal to $1.50 of the $2.47 in per share earnings. This piece of the yield is the after-corporate tax portion and will not be taxed on the state or federal level. The other yield is the remaining 39% of the 28.75% return on shareholders' equity, which is paid as a dividend. This amount equals 96 cents of the $2.47 per share earnings. This portion is what is taxes as personal or corporate for dividends.
