Micron (MU) - ER coming, watch the story

Guys

I know a few others hold this stock and whilst I have mentioned it in my portfolio reviews having added to my stake throughout this year, I have resisted banging the table on this one.

With the ER coming on Tuesday, it might be worth keeping a closer eye on though.

Just looking at the metrics, it seems a classic Saul method stock. It has very fast growth in revenues and earnings, is a very well run business that is in a demand sweet spot and in the technology space.
It has a P/E of 16.62 and a forward P/E of 8.78, a price to sales of 2.3, TTM revenue growth of 36% (accelerating to 92% in the latest Q), earnings growth of 580% and a PEG of 0.02.
http://www.nasdaq.com/symbol/mu
https://seekingalpha.com/symbol/MU/key-data

The reason why this is not being credited with a P/E of 60+ etc is because it is perceived as operating in a cyclical industry that is commodity in nature.

This is what I had to share back in March…
http://discussion.fool.com/hi-paul-ok-so-this-is-what-i-posted-a…

Since then the results and guidance have been spectacular:-
https://seekingalpha.com/pr/16876458-micron-technology-inc-r…

… and here are the notes from the recent Citi event…
https://seekingalpha.com/article/4104452-micron-technologys-…

Whilst I haven’t fallen for the end of the cycle theory, I do think that: looking at the trends the pricing cycle is smoothing out and on an upward trend, Micron is less commoditised than ever and is in a stronger competitive position than at any previous point and that the demand structures for its products exploding in ways never seen before (IOT, embedded solutions etc).

The 4 best writers covering the stock on Seeking Alpha are: Electric Phred, Joe Albano, Brian Gilmartin and Bill Tidwell.

Here are 2 recent instructive reviews of the current push/pull pressures between buyers and sellers.
https://seekingalpha.com/news/3296541-global-dram-bit-demand…
https://seekingalpha.com/article/4108869-micron-will-likely-…
https://seekingalpha.com/article/4109022-micron-earnings-pre…

The many comments are interesting. Many focus on the “it’s different this time” vs “it’s not different this time” debate. However there are some really interesting perspectives about just how disruptive and embedded the Micron advantage is, for example:

"Brian, thanks for a well balanced article. All the bull and bear cases are mentioned in your article and previous comments. I will not repeat here. But I like to point out the automata processor and the 3DXpoint. Automata processor resolves the bottleneck when processors retrieve data from memory. Simply put, MU has a new processor that is memory based that can do computation on the memory cells. This will quickly render NVDA GPU AI application obsolete. So what PE is reasonable for the AI leader stock? Currently NVDA is about PE 40. In this measure, with MU earnings be $8-$10, its price can be as high as $320-$400. Now back to 3DXPOINT, Samsung has no competing technology. Why would Samsung or Hynix add capacity that they know will be obsolete in a couple years? Until they can figure out a competitive strategy, it is safer to generate cash. So my core share holding which was bought below $10 will not be sold before I believe my thesis is wrong. Having said that, I sold most of my MU call positions last Friday when stock at $36.10. Since I already sit in huge pile of profit, i like to play it safe. If the stock dip before/after Earnings, I will happily buy more call options. Fundamental is for long term. Option trading for short term. "

Also Micron seems confirmed as an iPhone 8 Supplier…
"Actually, Micron is in the iPhone 8 breakdown.
“The iPhone 8 Plus A1897 model we are examining initially is confirmed to contain the A11 Bionic AP with a die mark TMHS09. The A11 is a Package on Package (PoP) with the Micron MT53D384M64D4NY 3GB Mobile LPDDR4 SDRAM” http://www.techinsights.com/about-techinsights/overview/blog…

For anyone in Micron, next week could be very interesting. Last time it pulled back 20-25% then recovered and moved ahead (I added on the dip).

For anyone not in Micron but buying into the Nvidia story, the server boom, the cloud data storage phenomenon, IoT, Apple iPhone 8 or AI, then again I think it is worth keeping an eye on.

Cheers
Ant

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Here is a similar positive report about Micron, where i first found out about their promise:
http://www.cmlviz.com/cmld3b/lite.php?ticker=mu&app=mult…

Here is some caution from TMF because of trade secrets risk:
https://www.fool.com/investing/2017/09/13/micron-and-umcs-tr…

The risk is the chance of mainland China getting trade secrets for advanced products and dumping cheap advanced memory on the market.

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Thanks for the write up, Ant.

MU is one I never would have thought about or looked at without having someone bring them to my attention like you did. As you state, the growth, fundamentals, and valuation all do look pretty impressive of late.

I went ahead and took a pretty small starter position in them and will roll the dice with the release tomorrow. Will evaluate as to whether to add to it or dump it after that.

Mike

I first learned about their recent prospects at Capital Market Labs (Ophir Gottlieb, et al). I got tired of selling puts and having the share price go up too far too fast, so I simply bought 100 shares a little over a week ago.

IBD rankings are a bit weak, even with it ranked #1 in its group…

ChecklistRating
Composite Rating 90 Neutral
EPS Rating 72 Fail
RS Rating 94 Pass
Group RS Rating C+ Neutral
SMR Rating C Neutral
Acc/Dis Rating A- Pass

Dragged down about 3.3% today with the market, so if earnings disappoint it could get whacked pretty good.

Currently about 7.5% above its pivot point, which was $32.45.

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Yeh it will be interesting to watch today! Thanks for chipping in on this conversation guys. Always good to be able to kick ideas around like this together rather than on ones own.
Ant

https://seekingalpha.com/article/4109126-micron-technology-c…

look at the long term DRAM price chart and see whether you think recent price strengthening is a blip or a long term event. If the latter it is probably not following Moore’s Law.
OTOH the one year price chart is very nice. Buying a year ago would have been a smart move. But we have to buy today. Does anybody today not know DRAM is in short supply?
MU is not for me, I don’t like commodities or semi commodities when there are innovations to buy instead, companies that will likely be expanding for years ahead.

Earnings report after close today.

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Earnings Beat and Beat:
https://seekingalpha.com/pr/16951821-micron-technology-inc-r…
Q4 EPS of $2.02 beats by $0.18.
Revenue of $6.14B (+90.7% Y/Y) beats by $180M.

and that is with 2-3 weeks of production shutdown due to a gas leak in the quarter!
automotive embedded doubled
Enterprise flash now considered a secular trend not cyclical
Quantx and 3DXPoint impact to come
$6.2Bn in cash

Guidance Beats:
https://seekingalpha.com/news/3297722-micron-technology-plus…
Q1 guidance: $6.1B to $6.5B (consensus:$6.06B); gross margin, 50% to 54%; operating expenses, $575M to $625M; operating income, $2.65B to $2.85B; EPS, $2.09 to $2.23 (consensus: $1.85).

Pricing forecast looks firm for Q1.

Trailing P/E is now at 6.89!

Earnings slides are here:
http://files.shareholder.com/downloads/ABEA-45YXOQ/528366227…

Ant

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Ant,

Thanks for bringing Micron to the board, up about 8% today after yesterday’s stellar release.

They seemed to beat on most every metric, including their guidance for the next quarter which at the midpoint was 17% above consensus.

I would think analysts’ estimates will get raised over the coming weeks, dragging the stock price up further.

This may not be a “buy and forget” stock, but I’ll hold and potentially add more until things start to not look so rosy.

I think I have finally learned not to hold some of these hardware stocks too long.

Well the upgrades have already started to come in…
https://seekingalpha.com/news/3297846-analysts-raise-micron-…

This might be another one of those stocks where it pays to buy high. Clearly not high in terms of valuation but should it close above 37 then we are in break out territory with a multi year high behind it.

Agree this is not a buy and forget stock!
Ant

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MU is not for me

Everybody understands the cycle in the semi but still, there is money to be made. I actually think INTC is the real long-term winner in this (related to MU) as they share the IP, foundry, etc.

https://finance.yahoo.com/news/video-micron-shares-could-dou…
an increase in CapEx spending could result in oversupply for Micron. Stifel analyst Kevin Cassidy isn’t one of them, though. He argues that while historically this may be the trend, it’s different this time thanks to Micron’s product mix. He maintained his buy rating and boosted his price target to $64 from $62, implying more than 75% upside from current levels.

more Micron bulls
DRAM is clearly cyclical. More demand will be met with more supply.Eventually.
So if you get on this merry-go-round be prepared to dismount earlier than the other riders. OTOH this kind of good news tends to spread more slowly than bad news so there might be some upside left even sans the help of a bull market…

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He argues that while historically this may be the trend, it’s different this time thanks to Micron’s product mix.

I hate hearing the bolded part!

http://www.investopedia.com/news/micron-set-double-after-q4-…

Micron Set to Double After Q4 Beat: Analysts

…with Needham, the Street’s biggest bull, issuing a $76 price target…expecting recent supply/demand trends to remain intact…expects Micron’s gains to be driven by easy-to-beat comps and expanding gross margins

Yeah, I know, confirmation bias, but it’s still nice to see in a newly taken position, gives me confidence to add.

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I’ve been an investor in Micron (MU) for over three years running. It’s been a profitable investment. I wrote a post in October 2015 (it was trading at $15-$18/share at the time) that addressed Micron’s foray into 3D-XPoint:

http://discussion.fool.com/muintc-and-3d-xpoint-31938090.aspx?so…

As it turned out, Micron fared quite well simply because NAND and DRAM prices firmed and Micron’s margins and profits rose accordingly. 3D-XPoint did not play a significant role in MU’s success this past year.

I truly believe Micron will have a very good year to come, even though it’s already up 70% YTD.

http://www.nasdaq.com/article/assessing-microns-mu-postearni…

The demand for MU’s products remains strong (growing stronger), and it appears that 3D-XPoint will finally enter the market in significant quantities.

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I’m tempted to get interested in this one…the numbers look crazy. Can you say a little about their competition, their competitive advantage, and their customers?

Thanks,
Bear

Can you say a little about their competition, their competitive advantage, and their customers?

Here’s a great overview:

http://www.hoovers.com/company-information/cs/competition.Mi…

Micron makes a variety of memory chips. Fabrication plants for these chips cost billions of dollars, consequently, there aren’t many competitors: namely, Samsung, SK Hynix and Intel. NAND and DRAM chips are commodity products. They’re in high demand because they’re used in all manner of electronic applications. When demand outstrips supply, chip prices skyrocket. Eventually, one of these companies builds another plant (even though it’s a huge investment). New plant = new supply of chips = price/margin declines. Given that it’s a commodity play, one has to pay attention to the supply/demand dynamics. MU was beaten bloody in 2015 because of an oversupply of these chips. I started buying shares in late 2015. That worked out well for me. At present, MU is in a sweet spot. Demand is high, supply is constrained. WooHoo!

But there’s more to this story: MU and Intel have jointly developed a new chip: 3D-XPoint. The technology is revolutionary. But it’s complicated and it’s taken some time to enter the marketplace. The payoff? Could be significant.

To sum up: MU is enjoying great business now and may very well enjoy even better business in the not-too-distant future. It’s my kinda company. Great future. Great margins. Great PROFITS.

(P.S. Simple P/E expansion to conventional levels could double the share price)

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Good summary, Putnid.

One point regarding this:

Fabrication plants for these chips cost billions of dollars, consequently, there aren’t many competitors: namely, Samsung, SK Hynix and Intel. NAND and DRAM chips are commodity products. They’re in high demand because they’re used in all manner of electronic applications. When demand outstrips supply, chip prices skyrocket. Eventually, one of these companies builds another plant (even though it’s a huge investment). New plant = new supply of chips = price/margin declines. Given that it’s a commodity play, one has to pay attention to the supply/demand dynamics.

Regarding the NAND flash side of things. Toshiba/Western Digital had about a 35% market share (Samsung 37%, Micron/Intel 17%, SK Hynix 11%) but Toshiba is having to sell that division to cover losses in their other businesses to avoid a potential delisting. They’ve started construction on building a new Fab 6 facility to add to flash chip production capacity and there’s been great interest in this sale. It’s been a soap opera for the last couple months as various consortiums have been bidding on the assets, but Western Digital is claiming a legal right to have a say in the sale, as they now own Sandisk, which has a joint venture agreement with Toshiba regarding their NAND chip production. Just today, Toshiba announced signing a deal with the group including Bain Capital, Apple, Dell, Seagate, Hoya and SK Hynix, spurning the Western Digital group.

Western Digital has filed various court injunctions to stop this sale, with final court results not expected until 2019. Don’t know for sure, but just saying this added capacity could be delayed, adding to the short supply of NAND flash chips for the foreseeable future…good for MU.

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Video explaining 3d Xpoint.
https://youtu.be/bO_fh450u6Y

Seems great and game-changing, if it were released 5 years ago, I’d be totally interested in getting some of this for myself.
Not quite sure how game-changing it is today. SSD drives are still the clear winner here. So this is the inbetween memory. But SSD is a few years old and getting cheaper every year.

So what am I missing. Why does this make NVIDIA GPUs obsolete? Why is this revolutionary? I’m not trying to argue whether Micron is a good or bad investment. I’m just trying to understand 3d xpoint.

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More institutional and commentator acceptance of the Micron thesis…

https://www.bloomberg.com/news/articles/2017-09-29/sun-co-fo…

https://seekingalpha.com/article/4111163-micron-endorsement-…

https://seekingalpha.com/news/3298755-micron-hits-new-height…

https://seekingalpha.com/article/4110746-micron-highest-high…

Cheers
Ant

(BTW Billy - 3D X point is due to come on stream with Intel this year - this wasn’t the Nvidia killer, that was another innovation that Micron developed that was being referred to in the original message).

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