MU Stock Forecast
This article was written by Vladimir Mazepa, a Financial Analyst at I Know First
Micron Technology (NASDAQ: MU) is one of the biggest and most important manufacturers of memory chips for computers. Micron has two main products – NAND chips allowing long-term storage (MP3 players, digital cameras and USB flash drives use NAND technology) and DRAM chips are used for operating memory needs where the memory cells go blank every time you turn the machine off.
My MU stock forecast – is a strong buy. Micron has strong fundamentals and is oversold now. It’s a perfect time to buy it with a huge discount!
Why are we bullish in our MU stock forecast?Here is a quick summary
Huge market from smartphones and solid-state storage devices or simply SSD and cloud data centers, artificial intelligence workloads and chips, which are connected in devices and self-driving cars provide huge possibilities for Micron growth and spread.
Micron holds and is one of the largest suppliers in DRAM and NAND chips
Micron is totally oversold due to investors putting too much emphasis on a trade war with China and markets downturn
Micron is very attractively priced at the moment. It now trades at only 2.65x P/E and 1.05x P/B, Debt to Equity = 0.11. According to the DCF model, the company is quite undervalued and gives you an opportunity to buy it with more than 60% discount.
Micron is one of the largest suppliers in DRAM and NAND occupying a big segment of the market share.
Nowadays, most of the demand comes from smartphones and solid-state storage devices or simply SSD. They create a massive market for Micron’s NAND chips. Micron’s management expects SSD-based sales to grow at an annual rate of more than 40% for the next five years. DRAM growth should continue at a lower but healthy 20% annual pace, driven by a shifting market mix.
Demand for memory is expanding to cloud data centers, artificial intelligence workloads, and chips, which are connected in devices and self-driving cars. Micron will be rewarded in the future for its chips as it is planning to invest $3 billion by 2030 to increase memory production at its plant in Manassas, Virginia and to create 1,100 new jobs approximately over the next ten years.
[Source: fool.com, Data by Micron]
Innovations and Competition
Intel and memory specialist Micron are planning to develop versions of a memory technology called 3D XPoint. It is a memory that retains the information that’s written to it, even when it doesn’t have power. This is a new jump in technology performance, although at a higher price.
The competition between AMD’s and Intel’s PC processors provokes people to make new computer purchases or do upgrades. This positively affects Micron’s sales in Micron’s desktop and laptop DRAM chips, which are used for both AMD’s Ryzen and Intel’s PC.
It is better when the ratio is high since it means that a greater portion of sales is translated into operating income and not wasted. From November 2016 until November 2018 we saw a significant increase in operating margin quarter by quarter. The operating margin of Micron is 49% this signalizes that the company is doing very well.
Investments in research are very important for tech companies if they want to be the leader in their field. Micron invests a significant amount of money on R&D. According to the graph below, Micron invests in R&D more and more from 2011 until 2019.
[Source: fool.com, Data by YCHARTS]
Discounted Cash Flow
For our MU stock forecast we used a two Stage Free Cash Flow to Equity Model by using analysts estimates of cash flows for forward 5 years for the first stage and in the second stage, we take company growth at a stable rate into perpetuity.
The DCF model shows that Micron is highly undervalued. For current share price 31.57$, Future Cash Flow value of the company is 83.94$ and this means that you can buy the company for more than 60% discount.
Cash Flow, Net Operating Cash Flow/Sales and Free Cash Flow
We can see that Cash Flow, Net Operating Cash Flow/Sales and Free Cash Flow increased dramatically from 2017 to 2018, this is a very positive trend. Free Cash Flow represents the net cash earnings after all the capital expenditures have been made and simply put it is the purest form of true profit.
The chart below is self-explanatory. It’s a perfect time to buy Micron now because EV/EBITDA is on a 5 year low at an impressive 1.486! Furthermore, the Gross Profit and Operating Margin are on its 5 years high!
[Source: seekingalpha.com, Data by YCHARTS]
Debt to Net Worth
Micron doesn’t have any debt problems. Debt to Net Worth is just 11.9%, which is a good figure. Secondly, debt has been decreasing over the last 5 years, which is an indicator of the right management of the company. Even if profitabilitydecreases by 50%, MU may still buy all its shares and pay off all its debt in about three years with earnings.
Current Bullish I Know First Forecast for MU
I rate MU as a strong buy. This stock also has a bullish forecast with a strong signal and predictability from I Know First for 1 month, 3 months and one year respectively. The high 0.85 predictability score means I Know First has a long track record of correctly predicting the 12-month price trend of Micron’s stock.
Past I Know First Success with Micron’s Stock Prediction
In the past I Know First has made an accurate bullish MU stock forecast in the past for one year in the article from August 22, 2017.
The article discussed clearly why there is a bullish outlook for Micron. This forecast included evidence of buy-side treatment from hedge fund managers since Q2 2016, which shows the confidence signal from hedge funds. Moreover, Micron’s desktop and laptop DRAM sales benefited from a surge in new PC purchases and or upgrades. As PC DRAM prices continued to surge, more people were buying new PCs during surging DRAM prices and DRAM contributed more than 60% of Micron’s revenue that was a positive bullish signal to buy MU.