Low Expectations make Micron Technology (NASDAQ:MU) a Defensive Tech Stock with Potential for Upside


This short article at first appeared on Only Wall St Information.

Very last 7 days Micron Technology ( NASDAQ:MU ) launched second quarter benefits. The results were being easily forward of forecasts, and assistance for the 3rd quarter was lifted. Right after in the beginning getting 4.7%, the share selling price tracked the sector reduce.

Micron has incredibly minimal expectations priced into its present-day valuation. At the same time, knowledge heart desire seems to be much better than envisioned , and if that carries on expectations could improve meaningfully.

2nd quarter success at a glance:

  • EPS: $2.14, up 118% 12 months on calendar year and 16 cents in advance of consensus estimates.

  • GAAP EPS: $2.00, up 277% calendar year on yr and 16 cents in advance of consensus estimates.

  • Income: $7.78 bln, up 24.8% yr on 12 months and $244 mln superior than anticipated.

  • Need and rates for NAND and DRAM memory chips go on to increase.

  • Information centre demand from customers for memory and storage is envisioned to outpace broader marketplaces above future decade.

  • Third quarter direction: Income estimate lifted from $8.1 bln to ~$8.7 bln and EPS from $2.21 to ~$2.33.

Micron’s near-term outlook has improved, although it truly is unlikely to match the previous quarter’s earnings advancement. But what actually matters for buyers is the expectations that are at the moment priced into the stock and how they could improve above time.

How does Micron Evaluate up towards the Tech Sector and Semiconductor Business?

If you glimpse at the Basically Wall St Marketplaces page , you can view the cost-to-earnings ratio and forecast earnings progress premiums for just about every sector, and for each individual industry within just about every sector.

We can see that the typical P/E ratio for semiconductor shares is 22x, which is the 3rd cheapest among the 6 industries, and considerably reduced than the computer software field which is at 37.3x.

When we glance at forecast progress prices, the semiconductor sector is anticipated to develop at 15.4%, which is only marginally reduced than the software program and digital products industries.

We can also mix the P/E ratio and expansion forecast by calculating a ‘PEG’ (P/E to Advancement) ratio. By dividing the P/E ratio by the expected growth level we get there at values that are less difficult to look at . We can insert Micron to the checklist two to see how it compares to the market, the tech sector, and the semiconductor industry.

Micron Technology PEG ratio

Micron Engineering PEG ratio

The current PEG ratios recommend that the semiconductor market is much more favorably valued relative to growth expectations than all the tech industries aside from digital gear. This does not imply semiconductor shares will complete better, but that expectations relative to forecasts are currently lessen.

Micron Technology’s P/E and PEG propose expectations are even reduced. The present forecast EPS progress level for the future number of decades is 19.9%. Even though EPS amplified by 182% over the final year, analysts are expecting a sharp slowdown in the upcoming few several years.

Demand from customers and price ranges for memory and storage chips is cyclical, so revenues are typically lumpy. In truth it is difficult to forecast desire a lot more than a year or two ahead, so analyst estimates are understandably conservative – and their forecasts are probable to change. The excellent information for investors is that these forecasts are lower, and the present-day P/E is lower relative to those forecasts.

What does this indicate for buyers?

The base line listed here is that Micron is at present seeing sturdy need for its solutions, whilst the market’s expectations for the potential are reduced. This contrasts with a large amount of other technology shares that have optimistic forecasts and even more optimistic valuations. This suggests downside for Micron could be constrained, while there is possible for considerable upside if the lengthier-time period outlook improves.

To master much more about the business, have a glance at our most recent assessment for Micron Technology . You can use the Simply Wall St Screener to obtain other semiconductor stocks with powerful fundamentals.

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Basically Wall St analyst Richard Bowman and Just Wall St have no situation in any of the companies pointed out. This report is normal in mother nature. We give commentary based mostly on historical details and analyst forecasts only using an unbiased methodology and our content articles are not meant to be financial guidance. It does not represent a recommendation to purchase or offer any inventory and does not consider account of your goals, or your fiscal circumstance. We intention to carry you very long-term targeted analysis driven by elementary details. Notice that our evaluation may perhaps not variable in the most up-to-date cost-sensitive enterprise announcements or qualitative product.



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