Micron Jumps on Earnings Beat; Still Has Room to Grow

Jianyu Zhao |

Micron Technology, DRAM memory, SanDisk, NAND flash storage, Elpida,  Equities EVA ReportsMicron Technology (MU) stock increased 4.69 percent to $32.74 per share as of 2:45 PM EST on June 24, one day after the company released a solid set of Q3 2014 financial results after the bell, which were accompanied by a positive Q4 outlook.

According to its financial results, the Boise, Idaho-based company posted earnings of $0.79 per share, which was above the $0.70 per share consensus. Thanks to the acquisition of Elpida in 2013, which filed for bankruptcy in February of 2012, revenues have a year-over-year increase of 72.00 percent to $3.98 billion. Micron also provided a solid forward guidance, calling for revenue of $4.00 to$4.20 billion in Q4, significantly above an estimated of $4.06 billion.

Micron is a top maker of memory technology, including DRAM memory for personal computers and NAND flash storage for PCs and computer electronics. Micron competes with Samsung, SK Hynix, SanDisk (SNDK) and Toshiba.

Acquisition of Elpida Strengthens Position

DRAM, short for dynamic random, accounted for 69 percent of Micron’s revenue in Q3, followed by NAND flash storage with 28.00 percent. The landscape for Micron’s core DRAM market has changed drastically over the years. Due to the fierce competition in the market, it was hard to balance pricing discipline so that Micron could maintain its position. In 2012, macro weakness, the demand-supply imbalance, intense competition and declining selling prices lowered Micron’s top line growth and impacted its profitability.

However, the industry has become consolidated, including rising demand from non-PC markets and improving memory product prices. In addition, Micron benefitted much from the acquisition of Elpida, giving the company better pricing discipline, better margins, while also elongating the earnings cycle.

Strong demand for DRAM chips, especially for servers, and an improving NAND business has led the company to another hit. Micron expects the NAND industry supply growth to be in a similar range as DRAM. NAND demand going forward will be in balance relative to the supply. Micron believes that the favorable long-term outlook for the memory market will fuel its growth in the following quarters, continuing a trend of exceptional gains.

“Pent-up demand for corporate refresh on desktop and notebooks seems to be leading to better-than-expected sector performance. PC DRAM pricing is improving both at major OEMs and in the channel as current forecast remains strong for Q4 and through the holiday season,” said President Mark Adams in the company’s earnings call.

Growth Rate for Micron Remains Solid

On June 24 national investment banking firm Needham raised their rating on Micron stock to “Strong Buy” from “Buy” on the solid financial results and favorable outlook. According to Equities.com’s EVA Reports, Micron’s revenue growth rate of 10.19 percent in fiscal 2013 greatly exceeds the industry average of 3.10 percent. Powered by its strong quarterly-earnings-growth of 317.90 percent and other driving factors, the stock has surged by 124.89 percent over the past year, outperforming the rise in the Standard & Poor 500 Index during the same period.

Micron ended the quarter with $4.81 billion in cash and equivalents. Total debt has been reduced to $5.64 billion, resulting in a net debt position of more than $800 million. So far Micron posted earnings of $1.90 billion in 2014, which could increase to $2.70 billion for the entire year.

With a large and diverse memory product portfolio, and the second largest installed manufacturing capacity, Micron is in a strong position to benefit and stay prudent in its capital spending in the future, and will regulate capital expenditures based on the return profile of the investment.

 

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Companies

Symbol Name Price Change % Volume
MU Micron Technology Inc. 18.61 -0.18 -0.96 26,635,463
ESHDF Esprit Holdins Ltd 0.90 0.12 15.38 8,649

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