Micron Technology, Inc. (MU) designs, manufactures and sells memory and storage products globally. The company operates through its four broad segments: Compute and Networking Business Unit; Mobile Business Unit; Storage Business Unit; and Embedded Business Unit.
This week, the Senate passed bipartisan legislation known as the CHIPS-plus or the Chips and Science Act to boost domestic semiconductor chip production and help producers compete with China. The package includes more than $52 billion for companies producing computer chips, as well as tax credits to encourage investment. MU might come out as a significant beneficiary of this funding.
Over the past year, the stock has declined 16.6% to close its last trading session at $61.89. It is down 33.6% year-to-date. However, the stock jumped 3.7% intraday. And the 12-month median price target of $79.73 indicates a 28.8% potential upside. The price targets range from a low of $50.00 to a high of $165.00.
Here are the factors that could affect MU’s performance in the near term:
Solid Financials
For the fiscal third quarter ended June 2, MU’s revenue increased 16.4% year-over-year to $8.64 billion. Non-GAAP operating income rose 33% from the prior-year quarter to $3.14 billion. Non-GAAP net income and non-GAAP EPS improved 35.3% and 37.8% from the same period the prior year to $2.94 billion and $2.59.
Low Valuations
In terms of its forward P/E, MU is trading at 7.55x, 64.3% lower than the industry average of 21.13x. The stock’s forward Price/Book multiple of 1.33 is 65.3% lower than the industry multiple of 3.82. In terms of its forward Price/Cash Flow, MU is trading at 4.47x, 73.6% lower than the industry average of 16.93x.
Wide Profit Margins
MU’s trailing-12-month EBIT margin and net income margin of 34.51% and 30.61% are 345.9% and 553.4% higher than their respective industry averages of 7.74% and 4.69%. Its trailing-12-month ROE, ROTC, and ROA of 21.66%, 13.12%, and 15.18% are 214.9%, 214.4%, and 420.7% higher than their respective industry averages of 6.88%, 4.17%, and 2.92%.
POWR Ratings Reflect Promising Prospects
MU’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
MU has a Value grade of A in sync with its attractive valuations. The stock also has a B grade for Quality, consistent with its solid profitability margins.
In the 94-stock Semiconductor & Wireless Chip industry, it is ranked #42. The industry is rated B.
Click here to see the additional POWR Ratings for MU (Growth, Momentum, Stability, and Sentiment).
View all the top stocks in the Semiconductor & Wireless Chip industry here.
Bottom Line
The passage of the CHIPS-plus Act might prove to be a significant push for MU’s operational capabilities. Moreover, its bottom line and profit margins show strength. And with Wall Street analysts expecting a considerable upside, I think the stock might be a solid buy now.
How Does Micron Technology, Inc. (MU) Stack Up Against its Peers?
While MU has an overall POWR Rating of B, one might consider looking at its industry peers, United Microelectronics Corporation (UMC) and STMicroelectronics N.V. (STM), which have an overall A (Strong Buy) rating.
MU shares were trading at $60.50 per share on Thursday morning, down $1.39 (-2.25%). Year-to-date, MU has declined -34.83%, versus a -15.27% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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