Can Micron Continue Its Excellent Run?

| About: Micron Technology (MU)

Micron (NASDAQ:MU) has appreciated by over 100% in the last year. The company's sale of DRAM and NAND products is creating shareholder value. Thanks to improving market conditions and the acquisition of Elpida, the company earned $43 million for the last quarter. It reported third quarter fiscal 2013 earnings per share of 4 cents, beating the Zacks Consensus estimate of 3 cents per share. Micron is currently trading at 12 times forward earnings estimates, suggesting that the market is expecting some growth over the next few years.

Another look at Micron

Another way to look at Micron is to assess the company's primary products. Revenues of the company's DRAM products rose 23% in the last quarter. This was due to a 16% rise in average selling prices and a 6% increase in the product's sales volume. If we assume that the selling price and sales volume continue with the same rate of increase in the present quarter, this will mean even more money for the company.

Micron's other primary product is the NAND flash memory. Revenues from sales of NAND Flash products were 7% higher in the third quarter compared to the second quarter due to an 8% increase in Trade NAND Flash average selling prices. If we assume that product sales increase by 7% in the present quarter, then Micron could earn a further $43 million in the next quarter. This makes for an improved valuation of the company going forward.

Hedge Fund Managers

Micron is currently held by hedge fund managers like George Soros, William Gray, and Howard Marks. Billionaire George Soros has been a major shareholder in Micron for some time. We can see that he has 419 million shares in his portfolio at the end of March. Orbis Investment Management, managed by William Gray, is another shareholder with a position of 122 million shares. Waddell & Reed Financial has a position of 29 million shares. Howard Marks's Oaktree Capital Management has 33 million shares in its portfolio.

Comparing Micron to its peers

Two of Micron's peers are Samsung (OTC:SSNLF) and SanDisk (SNDK). The trailing valuations of these two stocks are in the 7 and 18 range. Micron appears to be at a disadvantage because it has no trailing figures. Of course, Samsung has a brand name and has been strengthening its business through the smartphones and memory sector. The company's operating income was about $8.3 billion in the three months ended June 2013, but Samsung missed estimates of the 34 analysts covering it. This triggered a 13% slump in the stock, as 15 analysts cut estimates. Despite this, Samsung appears to be an interesting pick given that it has attractive price multiples compared to rivals. With a debt/equity of 9.59, it is more attractive than SanDisk (11.02), Micron (45.15), and Advanced Micro Devices (NYSE:AMD) (570.20). Its return on equity is 22.15%, compared to 9.99% for SanDisk, -9.18% for Micron, and -115.18% for AMD.

SanDisk has the lowest beta of the stocks we have mentioned here at 1.64. The stock is less risky than Micron (1.84) and AMD (2.54). Analyst expectations on the company are so high that the 5-year PEG ratio is less than 1. However, we should make sure that SanDisk has actually curbed spending on improving and building new factories. This will be in line with the decision in the industry to scale back supplies and stem price declines.

Another peer of Micron is AMD. The company reported disappointing margins on its next-generation gaming products in the last quarter. Despite a 65% growth in its global semiconductor business, the stock plummeted 14% to $3.97 on the news about the margins. Jefferies rated AMD a buy at a price target of $5 per share. However, Morgan Stanley and Credit Suisse downgraded the stock to underperform with price targets of $2.50 and $3.00 respectively.


Samsung, SanDisk, and Micron are growing nicely, and if memory prices remain stable, they appear to be good value and certainly better buys than AMD. Of course, we have noted the Elpida acquisition case for Micron, but investors may want to explore the issue in greater details. Micron has a price to sales ratio of 1.50, below the industry average of 1.60. If the company keeps beating Wall Street earnings estimates, there will be more upside in the next few years.

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.