Micron Technology, Inc. (NASDAQ:MU) and SanDisk Corporation (SNDK) are two technology companies offering memory and data storage technologies and manufacturing capabilities, with higher revenue growth and lower P/B as compared to their peers. Both companies had received positive calls from analysts recently and will be reviewed fundamentally and technically in this article. Investing strategies will also be reviewed.
Micron Technology, Inc.
MU was up 10.69% and closed at $10.04 on March 22, 2013. MU had been trading in the range of $5.16-$10.27 in the past 52 weeks. MU has a market cap of $10.26B with a beta of 1.33. Despite posting a quarterly net loss for Q2, 2013, MU's share price jumped with improving outlook for memory chip prices and analysts' upgrades. MU's long-term profitability will be limited by tough competition and cyclical disparities between supply and demand as memory chips are traded as a commodity. However, with improving fundamentals and outlook, more upside could be expected for MU.
On March 22, 2013, Jefferies reiterated a buy rating and boosted its price target by 50 percent, from $10 to $15 as MU impressed analyst with solid execution during Q2 and developing earnings power. The analyst said,
"Solid execution allowed positive secular industry fundamentals to flow through the model driving 600bps of GM expansion QoQ. Our recent conversations with investors in Europe indicate the power of Moore Stress in driving structurally favorable DRAM and NAND prices, gross margin expansion, and $2 EPS ex-Elpida, is under-appreciated. We believe there is upside to our Street-high estimates."
On the same day, RBC Capital's Doug Freedman raised his price target on outperform-rated MU from $10 to $12 following solid Q2 results after the close. Freedman stated,
"Solid results (excluding the impacts from currency hedges and sale of 200mm fab) as the company is increasingly focused on execution in core memory markets with a greater sense of focus on delivering leverage to the margin structure. In our view, the ASP/GB range is centering across its product portfolio, where the high-quality bits prices decline while lower quality bits sell in the spot market for higher prices. Longer term we believe this will drive less volatility from mix shifts and a more consistent operating margins. We believe MU is attempting to maximize margin opportunities across the portfolio, as the company is increasingly adjusting product mix and technology output for margins (as seen this quarter with Inotera's PC bits)."
Analysts currently have a mean target price of $10.22 and a median target price of $10.50 for MU, suggesting 1.8%-4.58% upside potential. For 2013, analysts are estimating an EPS of -$0.49 with revenue of $8.27B, which is 0.50% higher than 2012. Analysts are predicting an EPS of $0.64 with revenue of $10.22B for 2014, which is 23.60% higher than 2013.
There are a few positive factors for MU:
- Higher revenue growth (3 year average) of 19.7 (vs. the industry average of 10.9)
- Lower P/B and P/S of 1.2 and 1.1 (vs. the industry averages of 1.3 and 1.2)
- 14.04% long-term annual EPS growth estimate for the next 5 years
Technically, the MACD (12, 26, 9) indicator had turned to show a bullish trend on the last trading day. The momentum indicator, RSI (14), is picking up and indicating a strong buying momentum at 71.42, where above 70 is considered as over-bought. MU is currently trading above its 50-day MA of $8.25 and 200-day MA of $6.66, as seen from the chart below.
How to Invest
With improving outlook and expected growth, more upside is expected for MU in the long term. For bullish investors, a credit put option spread of July 20, 2013 $7/$8 put can be reviewed, which will allow investors to gain some upside credit premium or to acquire MU stocks at a price below $8 upon options expiration. Investors can also review the following ETFs to gain exposure to MU:
- PHLX SOX Semiconductor Sector Index Fund (NASDAQ:SOXX), 4.08% weighting
- SPDR S&P Semiconductor ETF (NYSEARCA:XSD), 2.63% weighting
SNDK was up 1.03% and closed at $55.19 on March 21, 2013. SNDK had been trading in the range of $30.99-$56.49 in the past 52 weeks. SNDK has a market cap of $13.35B with a beta of 1.75. SanDisk is strengthening its focus on SSD business and going all out in its commitment to deliver industry-leading SSD technology to customers. SNDK is expected to benefit from 4G TD-LTE trend with huge CapEx from China Mobile (NYSE:CHL). The long-term outlook for SNDK looks promising.
On March 20, 2013, Argus reiterated a buy rating and increased its target price from $58 to $65 for SNDK. On March 18, 2013, Sterne Agee also reiterated a buy rating and boosted its target price from $52 to $60 for SNDK. Analysts currently have a mean target price of $57.59 and a median target price of $59.00 for SNDK, suggesting 4.35%-6.90% upside potential. Analysts, on average, are estimating an EPS of $0.76 with revenue of $1.29B for the current quarter ending in March, 2013. For 2013, analysts are projecting an EPS of $3.78 with revenue of $5.60B, which is 10.90% higher than 2012.
In late February, SNDK announced that the iNAND Extreme™ Embedded Flash Drive (EFD) supports tablet reference designs based on the NVIDIA® Tegra® 4 - the world's fastest mobile processor1 from NVIDIA Corporation (NASDAQ:NVDA). iNAND Extreme, optimized for use in the tablets powered by Tegra 4, delivers an outstanding user experience by enhancing processing performance and providing reliable, high-quality digital storage. By pairing Tegra 4 with the iNAND Extreme, smartphone and tablet makers can create faster, quicker mobile devices with an even better consumer experience.
There are a few positive factors for SNDK:
- Higher revenue growth (3 year average) of 12.3 (vs. the industry average of 5.9)
- Higher operating margin of 13.8% (vs. the average of 12.0%)
- Lower debt/equity of 0.1 (vs. the average of 0.2)
- Lower P/B of 1.8 (vs. the industry average of 2.2)
- Lower Forward P/E of 13.7 (vs. the S&P 500's average of 13.9)
- SNDK has a total cash of $2.88B and a total debt of $1.70B
Technically, the MACD (12, 26, 9) indicator is showing a bullish trend, but the MACD difference continues to converge. RSI (14) is indicating a strong buying momentum at 71.39, where above 70 is considered as overbought. SNDK is currently trading above its 50-day MA of $50.51 and 200-day MA of $43.42, as seen from the chart below.
How to Invest
With estimated 30.70% long-term annual EPS growth for the next 5 years, more upside is expected for the long-term. For bullish investors, a credit put option spread of July 20, 2013 $48/$50 put can be reviewed, which will allow investors to gain some upside credit premium or to acquire SNDK shares at a price below $50 upon options expiration. Investors can also review the following ETF to gain exposure to SNDK:
- Morningstar Mid Growth Index Fund (NYSEARCA:JKH), 1.05% weighting
Note: All prices are quoted from the closing of March 22, 2013. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.