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Several Reasons Why Micron Is Undervalued

Harlan Kessler profile picture
Harlan Kessler
160 Followers

Summary

  • Micron is a prototypical GARP stock.
  • Second quarter fiscal 2014 results beat expectations.
  • Strong free cash flow improvement.
  • Implied upside of nearly 60%.

Shares of Micron Technology (NASDAQ:MU) gained after the company reported results for the second quarter of fiscal 2014 in which revenues and EPS bettered the consensus analyst estimates. Revenues of $4.1 billion were 3% ahead of the analyst estimate of $4.0 billion, 2% higher than the preceding quarter and a resounding 98% more than the $2.1 billion in the same quarter of the previous year. Gross margins at $1.4 billion showed an increase of 10% over the $1.3 billion in the preceding quarter and 283% growth over gross margin of $366 million in the previous year period. In a significant improvement, operating income of $869 million rose from $551 million in the preceding quarter and an operating loss of $23 million in the prior year's period. Net income amounted to $731 million ($0.61 per share) compared with $358 million ($0.30 per share) in the first quarter of fiscal 2014 and a net loss of $286 million ($0.28 per share) year-over-year. Adjusted net income was $989 million ($0.85 per share) compared with $881 million ($0.77 per share) in the preceding quarter.

The state of the memory chip market

The company said that there was no "bit growth" in DRAM but 35% "bit growth" in NAND sales (which excludes sales to Intel under a long-term agreement). Prices of DRAM declined by 1% year-over-year, but were more than offset by an 8% decline in costs. The 18% decrease in NAND prices was only partly offset by a 12% decline in costs. For the current quarter, the company expects the percentage bit growth of both categories of chips to be in double-digits while prices are expected to decline by low single-digits.

DRAM supply has stabilized despite the return to production of a Hynix facility which was closed due to a fire. DRAM production in 2014

This article was written by

Harlan Kessler profile picture
160 Followers
Harlan currently works as a Research Associate specializing in Investment Communications. Prior to his current role, Harlan spent seven years in investment management. The first two years were spent creating portfolios for retail investors, followed by five years in Market Risk for a major global bank Harlan earned his Bachelor's degree in Economics followed by a Master's degree in Urban and Regional Economics

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