MU Stock: Micron Technology, Inc.’s Next Move Could Shatter Expectations

MU Stock: Micron Technology, Inc.’s Next Move Could Shatter ExpectationsThis Could Be Big for MU Stock

On a day when the U.S. stock market is tanking and a company’s president is resigning, you’d expect its stock price to fall, but that’s not the case for Micron Technology, Inc. (NASDAQ:MU). On the first trading day in 2016, Micron’s stock price slipped in the morning on the news that its president, Mark Adams, would resign for personal health reasons, but quickly bounced back afterwards. By closing time, MU stock was up more than 3.5% for the day. (Source: “Micron Technology Announces Resignation of President Mark Adams,” Micron Technology, Inc., January 4, 2016.)

MU Stock: Challenges Ahead in Semiconductor Industry

2015 hasn’t really been a great year for semiconductor companies. The Philadelphia Semiconductor Index (SOX) returned a loss of -3.4% for the year. Micron, however, plunged much more dramatically. In 12 months, Micron’s stock price went from $35.01 to $14.16, an almost 60% drop! Of course, we shouldn’t forget MU stock’s tremendous performance in 2014, when its price surged more than 60%.

What contributed to the bearish sentiment towards Micron Technology was the company’s existing product lineup, which might face headwinds going forward. Right now, two of Micron’s main products are DRAM (dynamic random access memory) and NAND (negative AND) memories, which are largely used in computers. However, as the shift to mobile takes place in consumer electronics, demand for PC components is expected to slow down. This move could put downward pressure on prices of DRAM and NAND memories, which could hurt Micron’s top and bottom lines.

However, the company might see a way out. In response to the shift to mobile tech, Micron is rebuilding its competitive advantage by focusing on two products—advanced DRAM and 3D NAND. The company is using capital expenditure to ramp up production of the two technologies, with the benefits expected to materialize in the second half of fiscal 2016.

In December 2015, Micron announced that it agreed to acquire the remaining 67% stake in Inotera Memories Inc. Net of cash and debt, the deal was valued at $3.2 billion. Note that Micron already owned 33% of the Taiwanese chipmaker. Buying the remaining stake was considered a move to protect its intellectual property (IP) from Chinese competitors. (Source: “Micron Technology Agrees to Acquire Remaining Interest in Inotera Memories of Taiwan,” Micron Technology, Inc., December 14, 2015.)

Note that Micron currently buys all of Inotera’s output. Taking control of the entire company would enable Micron “to realize the full financial and operational benefit of Inotera’s operations,” according to Micron’s CEO Mark Durcan. Instead of getting Inotera’s chips at a higher price that included a profit margin shared with other investors, Micron would be able to get them at the cost of producing, said Sterne Agee analyst Doug Freedman. The analyst also gave MU stock a “Buy” rating and a price target of $19.00. (Source: “Micron is Reiterated by Sterne Agee CRT to Buy, Lowers Price Target to $19,” Money Flow Index, December 24, 2015.)

The Bottom Line on MU Stock

Looking at the financial metrics, Micron seems to be in good shape. Trading at $15.01 per share on Tuesday at around 11:30 a.m., the company has a debt-to-equity ratio of just 60%, which is below the industry’s average. Micron also has a price-to-earnings multiple of 8.31.

If the company successfully deploys its advanced DRAM and 3D NAND technologies, growth prospects would be improved to the point that the current P/E ratio would make MU stock look like a bargain.