Is An 8% Rise In Micron Too Much On Competitor Bankruptcy? (MU)

Micron Technology, Inc. (NASDAQ: MU) is seeing a large gain today on a rather unusual event.  One of its key competitors named Elpida in Japan is filing for bankruptcy protection.  Our take here is not to support the news, but we want to know if this stock has risen too much too fast on the news.

It has only been weeks since the company’s CEO died in a crash of an experimental airplane he was piloting crashed one Friday morning.  At issue is that today’s gain is almost 8% to $8.57 and the stock closed on Friday right around the same price as when the CEO died.

Many chip names have risen since that time, but valuations are getting back to normal in this sector.  Thomson Reuters has estimates of -$0.34 EPS for the August 2012 year-end and $0.45 EPS for the August 2013 year-end.  How do you evaluate companies losing money other than on revenues? You can use EBITDA, although this becomes more subjective and there comes a time in a company’s age when a company should be nimble enough to have profits in good times and through most hard times.

The market capitalization rate of the stock is almost $8.5 billion, and Thomson Reuters has estimates of about $8.5 billion this year and just over $9.5 billion a year from this August.

How Japanese and international banking laws apply to Elpida is something that we have not really tracked.  If the laws are similar to in America, then Elpida can remain a competitor. 

The real hope seems to be that one less competitor will be unable to sell memory at a loss.  The move looks elevated, but probably not unreasonable.  Shares are up almost 8% at $8.58 and the 52-week trading range is $3.97 to $11.89.

Thomson Reuters has a consensus price target objective of $9.31 on the stock.

JON C. OGG