Micron Technology (MU)

[chmcnfunds]

Micron Stock A Buy Despite Rival SanDisk's Lower Forecast
Mar. 27, 2015 10:49 AM ET | About: Micron Technology Inc. (MU), Includes: SNDK

Disclosure: The author is long MU, INTC, SNDK. (More...)

Summary

Micron will benefit from stronger demand for flash memory and solid-state drives since the new 3D NAND technology offers lower cost and higher storage flash memory.
Micron has compelling valuation measures and high earnings growth prospects; its valuation metrics are among the best in all S&P 500 technology companies.
In my view, Micron stock is extremely undervalued, and now is an excellent opportunity to buy the stock at a very cheap price.
Yesterday, on March 26, investors in flash memory producing companies were exposed to two significant developments. The first caused SanDisk (NASDAQ:SNDK) to plunge 18.45%, and the other left competitor Micron Technology (NASDAQ:MU) with a small gain despite an adverse market behavior.

SanDisk cut its revenue forecast after lower-than-expected sales from business products, delays to product qualification and lower prices. The company said it now expects earnings for the quarter that ends March 29 to be about $1.3 billion, down from a previously forecasted $1.4 billion to $1.45 billion. It is the second quarter in a row that SanDisk lowered its earnings forecast. As a result, many analysts downgraded the stock, and its share price dived to $66.20, a level not seen from late 2013 and 38.5% below it 52-week high of $107.65 from July 16, 2014.

On the other hand, Micron, which is also an important flash memory producer, has not followed SanDisk shares' plunge and its stock gained 0.34%. On the same day, Micron and Intel (NASDAQ:INTC) revealed the availability of their 3D NAND technology, which is according to the companies, the world's highest-density flash memory. Flash is the storage technology used inside the lightest laptops, fastest data centers, and nearly every cell phone, tablet and mobile device.

According to Micron, this new 3D NAND technology, which was jointly developed by Intel and Micron, stacks layers of data storage cells vertically with extraordinary precision to create storage devices with three times higher capacity than competing NAND technologies. This enables more storage in a smaller space, bringing significant cost savings, low power usage and high performance to a range of mobile consumer devices as well as the most demanding enterprise deployments.

The new 3D NAND technology stacks flash cells vertically in 32 layers to achieve 256Gb multilevel cell [MLC] and 384Gb triple-level cell [TLC] die that fit within a standard package. The 256Gb MLC version of 3D NAND is already sampling with select partners, and the 384Gb TLC design will be sampling later this spring. The fab production line has already begun initial runs, and both devices will be in full production by the fourth quarter of this year. Both companies are also developing individual lines of SSD solutions based on 3D NAND technology and expect those products to be available within the next year.

In my opinion, this new major development will benefit both companies. By producing lower cost and higher storage flash memory and solid-state drives, the demand for these products can increase exponentially. Despite the current relatively high price of flash memory, Apple (NASDAQ:AAPL) users are already upgrading to iPhones with more storage capacity, and emerging device makers embed more chips into future phones. In addition, continued growth in flash demand from cloud-service data farms, and ongoing transition away from HDDs and toward SSDs in client PC and server markets will contribute to the growth in the demand for NAND Flash Memory.

SanDisk is also developing 3D NAND technology. On March 25, the company announced that it has successfully developed its 48 layer second generation 3D NAND, also referred to as BiCS2. Pilot production will commence as planned in the second half of 2015 in the Yokkaichi joint venture facility. However, meaningful commercial production is targeted only for 2016.

Micron's last stock price of $26.66 is 27.1% below it 52-week high of $36.59 from December 05, 2014.

(click to enlarge) (click link below for tables/charts)

Chart: TradeStation Group, Inc.

In my opinion, Micron stock is extremely undervalued, and now is an excellent opportunity to buy the stock at a very cheap price. Just let's look at its valuation metrics.

Micron's EV/EBITDA ratio of 5.25 is the third-lowest among all 65 S&P 500 technology companies.

(click link below for tables/charts)

Source: Portfolio123

According to James P. O'Shaughnessy, the Enterprise Value/EBITDA ratio is the best-performing single value factor. In his impressive book "What Works on Wall Street," Mr. O'Shaughnessy demonstrates that 46 years back testing, from 1963 to 2009, have shown that companies with the lowest EV/EBITDA ratio have given the best return.

Micron's long-term PEG ratio of 0.60 is the second-lowest among all 65 S&P 500 technology companies.

(click to enlarge) (click link below for tables/charts)



Source: Portfolio123

In addition, Micron's price-to-free-cash-flow ratio of 10.64 is the fifth-lowest among all S&P 500 technology companies, and its P/E ratio of 8.60 is the second-lowest among all S&P 500 technology companies.

Summary

In my opinion, Micron will benefit from stronger demand for flash memory and solid-state drives since the new 3D NAND technology offers lower cost and higher storage flash memory. Micron has compelling valuation measures and high earnings growth prospects; its valuation metrics are among the best in all S&P 500 technology companies. It is hard to find a large cap company with such low ratios: EV/EBITDA at 5.25, PEG ratio at 0.60, price-to-free-cash-flow ratio at 10.64 and P/E ratio at 8.60. In my view, Micron stock is extremely undervalued, and now is an excellent opportunity to buy the stock at a very cheap price.
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http://seekingalpha.com/article/3033666-micron-stock-a-buy-despite-rival-sandisks-lower-forecast?auth_param=udil:1ahargc:faba34e50e8a5a24409ecc5f49f81ecb&uprof=46

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