Micron Technology Inc. (NASDAQ: MU) has had a rough time since 2014. The only true large domestic survivor in DRAM production migrated into NAND and shares rose from roughly $5.00 in late 2012 to $35.00 for 2014. That was then. Now shares are back down close to $10.00.
Micron recently hosted its analyst day meeting, and 24/7 Wall St. has seen many research reports come out on the DRAM/NAND leader. These analysts have very mixed views, and this is a situation that remains both fluid and in transition. One thing that investors have to consider here, on top of just very mixed views, is that estimates for earnings are all over the place.
It turns out that being in DRAM chips is like being in a commodity business, but where the price of chips only goes down through time. This creates an environment in which investors just do not want to pay up for a market multiple on earnings.
Micron’s Thomson Reuters consensus earnings per share (EPS) estimates are $0.43 for 2016 (August) and $1.48 for 2017. That means that it is valued at 23 times this year’s expected earnings but valued at only seven times next year’s expected earnings. Does it matter that its earnings from a year ago were $2.43 per share?
The many analysts that have keyed in on Micron after the analyst day include Wells Fargo, Merrill Lynch, Credit Suisse, S&P, Morningstar, Cowen, Mizuho, Nomura and Wedbush.
Wells Fargo’s David Wong maintained his Outperform rating and his valuation range is $16 to $19. The takeaway was that Micron’s upcoming DRAM and NAND technology transitions could help drive bit growth over the next two years while also driving down cost per bit and helping Micron’s margins. DRAM bit output is expected to take a step up in the second half of 2016, level off in the first half of fiscal 2017 and then begin rising in the second half of 2017. The firm’s investment thesis was explained as:
Our valuation range is based on approximately a 13x to 16x multiple of our FY17 EPS estimate of $1.20. This multiple is consistent with where Micron has traded at various times in the past. Risks include highly volatile pricing for DRAM and NAND flash, the need for relatively high levels of capital investment, and large swings in Micron’s profitability that have occurred in the past and which we think are likely to continue in the future.
Micron has a diversified portfolio of DRAM, NAND flash and NOR flash memory products. The company has made a number of significant investments and acquisitions to expand its manufacturing capability at what we consider to be advantageous prices. However, we think there is risk associated with the high fixed cost and commodity-like nature of the semiconductor memory business.