Seeking Alpha
Long only, value, growth, large-cap
Profile| Send Message|
( followers)  

Summary

  • MU reports strong q3 '14 quarter.
  • Revenue grew 72% year-over-year (y/y).
  • Still think fair value high $30s, low $40s.

Micron Technology (NASDAQ:MU) reported financial results on Monday, June 23rd, 2014, which were quite strong, both relative to expectations, and in absolute terms as well.

With revenue up 72% y/y, and operating income up over 300%, there is little negative to be said about the quarter.

Consolidation within commodity memory manufacturers, a seeming inability or unwillingness to bring on new supply, as well as improved demand has put the DRAM, NAND producer in the sweet spot of the cycle.

However, looking at forward estimates for MU, here is how the analyst consensus have predicted full year, fiscal 2014, 2015 and 2016 earnings:

 q3 '14q2 '14q1 '14q4 /13
f/y 2016$3.48$2.92$2.68$2.33
f/y 2015$3.34$3.07$2.56$2.28
f/y 2014$3.16$3.02$2.14$2.08

* Source: Thomson Reuters Estimate Detail

If you do the math on the current fiscal 2015 and 2016 estimates, current consensus is just looking for y/y EPS growth of 6% and 4% respectively.

If the revenue consensus estimates were put up as the EPS table was, the revenue growth for fiscal '15 and '16 would be 8% and 6% y/y growth of respectively.

One of the issues I've had with the stock and the analysis is, that we don't know what the "organic" growth is ex-Elpida. Some readers may know that as pro-forma results.

The one unambiguous positive to MU is that trading at 11(x) 4-quarter trailing EPS and 9(x) forward EPS for 2015, not to mention the 8(x) "enterprise-value" to 4-quarter trailing cash-flow, the stock is hardly expensive, but that also presumes a stability of forward earnings, which, if you've known and studied the company as long as I have (and the sector) you tend to cast a snack eye upon.

A lot of sell-side analysts are starting to throw out $4 and $5 EPS numbers for MU, and they could be right.

As the US and the rest of the world return to global growth, maybe MU has $5 per share in its future.

Using our internal intrinsic valuation model, which is like every other model in that it is inherently flawed, here is our estimated intrinsic value for MU after the last 3 earnings reports:

5/14 q3: $40

2/14 q2: $37

11/14 q1: $41

* Source: internal spreadsheet using "forward 4-quarter estimate" for MU

Despite the pleasant upward rise in EPS and revenue estimates for MU, using those forward EPS estimates, our estimated intrinsic value just hasn't changed that much for the company.

Our model could be very wrong too, as every model is at various times.

A trade through $40 for MU and we would become a very nervous long.

We could wind up selling far too early too, but the uber-bullish sentiment is another worry. I'd prefer to see a lot more skepticism around the shares. Maybe that is the problem: Street analysts could be talking bullish, but not really moving their numbers in the models enough on those forward years.

MU was up 3% today, July 1, '14, on heavier-than-average volume. The stock hit a 52-week high today too.

We will remain long MU with our current position through the fiscal 4th quarter, which should get reported late September, early, October '14, and will continue to watch that 2015 EPS estimate.

For now though, our basic thesis around why we own the stock, hasn't changed much.

Here was our earnings preview for MU, prior to the last earnings report.

Source: Micron Earnings Redux: Still Think Intrinsic Value Is In The $40 Area