Hi, has anyone looked into/invested in this American company? P/E 4? Vulnerable in a trade war, or how is such a large tech company priced so cheaply?
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At a quick glance, the company’s last year’s earnings look exceptionally high due to tax relief, similar to other US companies. In such cases, it’s better to calculate longer-term averages. I got a 5-year average earning of 2.39 billion, and divided by the current number of shares (1.09 billion), that makes an EPS of 2.19. Share price $44.50 / 2.19 = 20.13 P/E.
Free cash flow is even worse: $44.50 / (1.11 / 1.09) = 43.7 price/share free cash flow.
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Juipilla makes a good point that in highly cyclical companies, it’s worth looking at how the company has made money over the long term.
The market generally expects Micron’s earnings to decline in the coming years as margins erode and growth falters.
Here’s an article I found on SA about the topic: https://seekingalpha.com/article/4205397-microns-declines-may-begun
This could be one of those stocks that should be bought when the P/E ratio is around 100 or negative, i.e., at the bottom of the cycle. Similar symptoms can be seen in Siltronic.
The company has communicated that this time it’s different and the highly cyclical dynamics in the industry have changed, but the company naturally has its own agenda, who knows: http://files.shareholder.com/downloads/ABEA-45YXOQ/6382554279x0x981951/2EB9B872-CC47-4A99-A325-E871210C941F/FQ3_2018_Earnings_Call_Presentation_IR_Website.pdf
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Could you explain how you calculated the free cash flow there? It wasn’t clear from those numbers.
Is 43.7 the ratio of the current share price to the free cash flow per share? What is that denominator (1.11/1.09)?
Thanks in advance.
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Emilio, I took the five-year average of free cash flow ($1.11 billion) and divided it by the number of shares (1.09 billion). When you divide the share price by the free cash flow per share, you find out how many dollars a share buyer has to pay for one dollar of free cash flow at these prices. Free cash flow is a theoretical figure obtained by subtracting capital expenditures (CAPEX) aimed at maintaining or expanding operations from operating cash flow. Free cash flow can then be used to pay down debt and pay dividends.
Micron Technology generates good operating cash flow relative to its share price but has to make extensive annual investments. The amount of debt is also on an upward trend. Data obtained from MarketWatch.
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Micron has indeed been extremely cyclical. It’s worth investing in only if one believes that things are different now.
But Micron’s earnings have genuinely increased significantly, and its valuation relative to that is now very low. The P/E ratio can indeed be misleading, but EV/EBIT eliminates tax effects.
Analysts predict Micron will achieve good results for the next couple of years. Even with the 2020 EBIT used to calculate EV/EBIT relative to the current EV, it gives only just over 3. However, the cycle can turn sharply again.
Nevertheless, significant consolidation has occurred in the market over time, so there might be grounds for a new, permanently better profitability level (?).
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Free cash flow is a familiar concept, but I couldn’t grasp the numbers because I’ve only glanced at this course. Thanks for the clarification.
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In the last cycle, it looked similar to now. The price hovered around $32, and the valuation was low. It was one of Seeking Alpha’s most followed stocks, and even then, everyone, including analysts, was demanding 50% increases. It eventually dropped to around $10 and suddenly didn’t seem so cheap, even though 70% of its value had gone.
This time, it should be different, as market fundamentals are strongly supportive. A bit like Siltronic, actually. Without Micron, digitalization, IoT, and machine learning won’t advance at full speed. It will be interesting to see if demand is enough to disrupt the cycle.
It’s a good stock for trading, but I recommend not getting too attached 
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-MU investor event slides: https://seekingalpha.com/article/4176022-2018-micron-analyst-investor-event-slide-show
-Micron will buy back $10B of its own shares during FY2019.
-Still mostly DRAM sales. DRAM Exchange Index (DXI) DRAM Price Trends | TrendForce
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Soft guidance, but the results exceeded expectations https://seekingalpha.com/news/3391966-micron-drops-q4-beats-nand-asps-downside-q1-guidance
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Is there any info from Micron today?
Tuli Q1’19 tulos:
Guidance update: Micron guides Q2 revenue of $5.7B to $6.3B (consensus: $7.18B) and EPS of $1.65 to $1.85 (consensus: $2.45) with NAND and DRAM ships both expected weaker. FY19 capex guided from $9.0B to $9.5B, reduced by $1.25B from the prior guidance.
Conference call update: Micron reiterates that SSD will be in a year of transition with share gains expected to resume in 2020.
DRAM demand weakened in Q1 with limited near-term visibility. The company thinks some customers carried higher than normal inventory levels and now customers are bringing down the level. Smartphone demand continues to weaken and Micron is seeing the impact of CPU shortages.
DRAM bit growth is expected to grow Q/Q going into Q3. Micron lowers its FY19 bit growth guidance to 15% from 20% and plans to significantly reduce capex in the period.
NAND bit growth expected at 35% with supply growth exceeding demand in FY19. Company lowers its NAND bit growth estimate and capex for FY19 but expects demand to accelerate in 2H19.
Lam Research (NASDAQ:LRCX) and Applied Materials (NASDAQ:AMAT) are down 2.8% and 1.9%, respectively, after Micron’s capex cuts.
Micron (NASDAQ:MU) reports Q1 results that beat on EPS but missed on revenue despite a 16% Y/Y revenue growth. Guidance will come on the earnings call scheduled for 4:30 PM ET with a webcast available here.
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One observation about Micron is that bears, especially on Seeking Alpha, tend to throw in the argument “cyclical stocks should be bought near a P/E of 100”. While this is generally true, it might not apply to Micron.
If you look at the chart below, you can clearly see how GP/OP has improved from one cycle to the next. At the bottom of the DRAM cycle in 2012, it was in the red. That P/E of 100 was likely taken from the previous cycle bottom in 2016, as OP was hovering near zero then.
Source for the image above: SA article:
https://seekingalpha.com/article/4257319-now-good-time-buy-micron-stock
The trend for Micron seems to be that profitability improves from one cycle to the next (although this history only covers about two cycles and a bit of a third). I see at least two possible reasons for this. Firstly, building a production line for each new generation costs increasingly more, and semiconductor factories are multi-billion dollar investments. In other words, even medium-sized players are starting to have difficulty financing these monster factories.
Secondly, both the DRAM and Flash markets have slowly consolidated.
For example, even with older generation semiconductor factories, large companies resorted to joint ventures. For flash factories, for instance:
Intel-Micron and
Toshiba-Sandisk (now part of Western Digital).
Of course, Micron is a cyclical and very risky (volatile) investment, and even though I have a large slice of it in my portfolio, I wouldn’t recommend it to anyone without reservations.
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Risky and volatile. It depends on how you look at it… I’d rather take a 15 percent return with higher volatility than a 10 percent return with low volatility.
I have quite a bit of this in my portfolio. The company’s competitive position in the market has improved significantly in recent years, and its cost profile has improved considerably compared to Samsung and Hynix. The balance sheet is also in such good shape that it can withstand any downturn. However, all players are talking about a recovery by the end of the year, so there might be a couple more weak quarters, but then we’ll start to climb.
Consolidation in NAND chips hasn’t happened in the same way as in DRAM yet. Probably within five years, there will only be a few leading players there too (Samsung, SK Hynix, Micron). Micron is, to my understanding, the cost leader in NAND chips, even if it’s not the largest player.
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Micron is delivering strong results even in a downcycle. Sanjay’s talk about improved cost efficiency is not pulled out of thin air, and the company seems to be weathering every economic cycle profitably.
In my opinion, this should be reflected in a higher valuation. The company’s balance sheet is solid compared to years past, and profitability over the cycle has improved.
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While it might not have significant financial implications, Micron has positioned itself in the consumer segment as a memory manufacturer offering good value for money, especially for AMD’s Ryzen processors.
It’s an interesting company, and it’s nice to see discussion about it on the Inderes forum. However, investing in the company, in my opinion, requires a view on the future memory markets and their price levels. Are there any good analyses available for this (e.g., for the next 5 years)?
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Now we’re already back to a few days ago, as all forecasts are being beaten by a good margin. It’s sometimes hard to understand Mr. Market’s thoughts 
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I’ll bump this thread as I’ve jumped back in. The stock has slid 20% from its April highs. Micron’s forward PE is currently ~7, and the company has plenty of cash. GS significantly lowered its PT and predicts that the cycle peak has passed, and memory manufacturers’ pricing power is weakening.
However, I would argue that megatrends are also on the company’s side. Computers, and thus memory, will be needed more and more in the future. Cars, mobile devices, PC sales are also surprisingly strong, IoT, etc.
Management’s outlook for the rest of the year is positive despite chip supply problems.
From the earnings call:
"As a result, our expectations for calendar 2021 DRAM and NAND bit growth have increased since our last earnings call, and we now expect calendar 2021 DRAM bit demand growth to be somewhat above 20% and NAND bit demand growth in the mid 30% range. There is currently unmet demand for DRAM and NAND due to end market strength. This unmet demand would have been even larger had it not been for the non-memory component shortages influencing our customers’ ability to manufacture their products, particularly in the PC, automotive and industrial markets. These shortages can cause variability in demand patterns as customers experience challenges sourcing matched sets of non-memory components.
We are hopeful that foundry capacity coming online can begin to alleviate some of the component shortages in the second half of calendar 2021 and support robust memory and storage growth. Additionally, as a result of strong end market demand trends, the lessons of the pandemic and ongoing geopolitical uncertainty, some customers will change their inventory management strategy from just-in-time to just-in-case and increase the target level of what they consider normal inventory levels.
Long term, we see a DRAM bit demand growth CAGR of mid to high teens and a NAND bit demand growth CAGR of approximately 30%."
https://seekingalpha.com/article/4437346-micron-technology-inc-s-mu-ceo-sanjay-mehrotra-on-q3-2021-results-earnings-call-transcript
Not everyone shares GS’s view on the stock price.
https://www.cnbc.com/2021/08/24/micron-nasdaq-100-stock-looks-ridiculously-cheap-trader-says.html
" Chipmaker Micron’s stock could prove to be a strong catch-up trade, Joule Financial founder and chief investment officer Quint Tatro told CNBC’s “Trading Nation.”
“It is trading at valuations now that are just ridiculously cheap,” a nearly seven times forward price-to-earnings multiple as of Tuesday’s close, Tatro said Tuesday.
“Let’s say they don’t hit those earnings because we do have a slowdown in memory chips, so, it’s 10 times or 12 times forward earnings — again, still ridiculously cheap,” he said.
With a “stellar balance sheet” and a sizable position in the computer chip market, Micron is poised to pop if demand for computers picks up, Tatro said."
In the current market, such an affordable “value blue chip” that makes a lot of money, has a large share of the market, and significant moats (vallihaudat) for new entrants seems almost like a no-brainer.
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Huhu (rumor) boosted both MU and WDC’s share prices last night.
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I had already forgotten about that. What’s funny about the situation is that a company the size of Micron rose 4% ($3.33 billion) even though the merger probably doesn’t affect it at all? Or rather, negatively, because a stronger player would enter the market?
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