Markets

What Makes Micron (MU) a Hot Pick for Investors Right Now?

The technology space continues to be investors' favorite due to its dynamic nature. This field is expected to grow faster than ever before. Therefore, if you invest right, you can reap the benefits over time. Tech companies will continue to transform our world with each passing year. So, if you don't want to be left behind, make sure you're investing in quality tech stocks.

Below we have evaluated one technology company that has demonstrated remarkable share price performance so far. Micron Technology, Inc.MU has generated high returns for investors in the last one year and has the potential to exceed expectations in the days ahead.

The stock has gained approximately 143.4%, outperforming the Zacks categorized Electronic-Semiconductor industry's return of just 44.2%.

Let's look at the reasons behind Micron's solid momentum.

What's Driving the Stock?

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, DRAM and NAND prices 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. The company's first-quarter fiscal 2017 revenues not only increased 18.5% on a year-over-year basis, but also surpassed the Zacks Consensus Estimate of $3.784 billion. Most importantly, it witnessed a 5% increase in DRAM average selling prices (ASP) during the quarter.

The company's first-quarter adjusted earnings per share (excluding the impact of one-time items but including stock-based compensation expense) of 28 cents came ahead of the Zacks Consensus Estimate as well as the year-ago quarter's figure of 24 cents.

An encouraging top- and bottom-line guidance for the second quarter, way above the respective Zacks Consensus Estimate, have also helped in boosting investors' confidence about the company's future prospects.

Micron Technology, Inc. Price, Consensus and EPS Surprise

Micron Technology, Inc. Price, Consensus and EPS Surprise | Micron Technology, Inc. Quote

Upward Estimate Revisions

In the last 30 days, the Zacks Consensus Estimate for the second quarter and fiscal 2017 witnessed upward revisions. For the fiscal second quarter, the Zacks Consensus Estimate is currently pegged at 77 cents per share, up 22 cents from earnings of 55 cents projected 30 days ago. The Zacks Consensus Estimate for fiscal 2017 is currently pegged at $2.33 cents per share, compared with $1.83 projected 30 days ago.

Other Driving Factors

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 more energy efficient than traditional hard drives. These are also used in servers due to lower latency, thereby facilitating faster response to real-time applications.

Notably, 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 - a key technology that 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 anticipates the aforementioned factors to also have a positive impact on its fiscal second-quarter results.

Bottom Line

Looking at the improving selling prices for DRAM and strategic initiatives of expanding in the SSD market, we consider that Micron is one such technology stock which is worthy of remaining in investors' portfolio.

On the valuation front too, the stock looks attractive. The company currently trades at a forward P/E multiple of 11.2x, significantly lower than the Zacks categorized Electronics-Semiconductor industry average of 15.2x. 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 a value investor.

Hence, we believe that there is still much momentum left in this Zacks Rank #1 (Strong Buy) stock, which is quite evident from its VGM Style Score of "A" and long-term earnings growth rate of 10%. You can see the complete list of today's Zacks #1 Rank stocks here .

The stock has grabbed the spotlight with striking performances on the back of solid earnings results and robust growth projections. Keeping this in mind, we perceive that investing in this stock will yield strong returns in the near term.

A couple of other stocks worth considering in the broader technology sector are Applied Optoelectronics, Inc. AAOI and Broadcom Ltd. AVGO , both sporting a Zacks Rank #1. Applied Optoelectronics and Broadcom have an expected long-term EPS growth rate of 18.3% and 13.6%, respectively.

More Stock News: 8 Companies Verge on Apple-Like Run

Did you miss Apple's 9X stock explosion after they launched their iPhone in 2007? Now 2017 looks to be a pivotal year to get in on another emerging technology expected to rock the market. Demand could soar from almost nothing to $42 billion by 2025. Reports suggest it could save 10 million lives per decade which could in turn save $200 billion in U.S. healthcare costs.

A bonus Zacks Special Report names this breakthrough and the 8 best stocks to exploit it. Like Apple in 2007, these companies are already strong and coiling for potential mega-gains. Click to see them right now >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Seagate Technology PLC (STX): Free Stock Analysis Report

Broadcom Limited (AVGO): Free Stock Analysis Report

Applied Optoelectronics, Inc. (AAOI): Free Stock Analysis Report

Micron Technology, Inc. (MU): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

AAOI MU STX AVGO

Other Topics

Investing Stocks

Latest Markets Videos