Micron Technology Inc. 's MU shares have added about 4.5% in yesterday's trade, outperforming the market.
In the last one year, its shares have gained 144.6%, while the Zacks categorized Electronics-Semiconductor industry recorded an increase of 43.1%.
Will the recent positive trend continue driving the stock over the the long haul or is it due for a pullback? Before we discuss how investors and analysts have reacted as of late, let's take a quick look at the most recent fundamentals and trends in order to get a better hold on the important drivers.
The main reason behind the optimism surrounding the stock is improving prices for DRAM and NAND chips, which makes investors confident about Micron's growth. Per various sources, the prices of these chips have improved primarily due to a better product-mix optimization and higher-than-expected demand for PCs, servers and mobiles.
The benefit from improved pricing is well reflected in the company's last quarterly results (second-quarter fiscal 2017). Micron Technology's top and the bottom lines increased on a year-over-year basis, mainly due to pricing improvement in DRAM and NAND sales volume. The fiscal third-quarter guidance was also encouraging.
It should be noted that Micron has been expanding in the SSD storage market due to the decline in the PC market. Notably, SSDs are faster and energy efficient than traditional hard drives. These are also used in servers due to lower latency and facilitate faster response to real-time applications.
The company has an interesting partnership with Seagate STX . Under the agreement, Micron supplies a significant portion of Seagate's NAND requirement. In return, Seagate shares its SAS SSD technology with Micron, the kind of technology, which the latter lacks in the enterprise SSD market. We believe that this deal will expand Micron's high-value enterprise SSD portfolio.
Additionally, the acquisition of Inotera in 2016 is anticipated to be accretive to Micron's DRAM gross margin, earnings per share and free cash flow. According to the company, the acquisition will also have some operational benefits, leading to efficient management of investment levels and cadence followed by alignment with global manufacturing operations.
The company is positive about the product launches and growing demand, particularly that of SSD products. The company has been constantly innovating memory technologies, spanning DRAM, NAND and NOR Flash memory solutions, which are widely used in the latest mobile computing devices as well as in consumer, networking and embedded products.
How have estimates been moving since then?
Analysts were quiet during the last one month period as none of them issued any earnings estimate revisions.
Style Scores Look Great
Micron currently sports an "A" grade for Value and Growth, lifting its overall VGM score to "A."
On the valuation front too, the stock looks attractive. The company currently trades at a forward P/E multiple of 8.5x, significantly lower than the Zacks categorized Electronics-Semiconductor industry average of 15.1x. The ratio, which is obtained by dividing a stock's current market price with its historical or estimated earnings, measures how much an investor needs to shell out per dollar of earnings. Therefore, lower the P/E of a stock, the better for investors.
The consensus estimate has been stable over the last 30 days. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock over the next few months. Additionally, the stock has long-term earnings per share growth rate of 10%.
In our opinion, the stock deserves a place in investor's portfolio and we are expecting an impressive return from the stock in the next few months.
A couple of better-ranked stocks in the Electronics-Semiconductors space are Applied Optoelectronics, Inc. AAOI and Broadcom Limited AVGO . While Applied Optoelectronics sports a Zacks Rank #1 (Strong Buy), Broadcom carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .
Long-term expected EPS growth rate for Applied Optoelectronics and Broadcom is 20% and 13.6%, respectively.
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