Why Micron Could Double By 2013
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Micron Technology (NASDAQ: MU) is one of the most appealing investments in the tech industry. Its stock price is currently available at a significant discount in comparison to other assets in the industry. There are a number of factors that could lead to this stock price doubling by 2013. The price increase for Micron is going to be synonymous with the improving demand in the desktop and mobile PC sectors throughout the remainder of the year. The acquisition of a potential supplier for Apple (NASDAQ: AAPL) and the advent of Windows 8 will increase Micron's stock price substantially. Micron can also grow organically as it continues to improve market share under its enterprise and data server divisions throughout 2012.
Micron Technology is down from the 52-week high in February of 2012. Micron's beta is typically around 1.5 while the price to sales ratio and price to book ratios are below one. Its priced at around ten times earnings looking forward. Sales growth increased by over 1.5 percent from last year and it increased by over five percent since the last quarter. These figures indicate a valuable asset on the market, capable of a minor amount of potential growth or a rebound in pricing before the year's end.
The return on equity, operating margin and net profit margin all decreased from the end of 2011 to the end of February in 2012. The debt to equity ratio increased in the same time period, along with the quick ratio. The current ratio decreased from the end of 2011, but it is still over 2.5, the quick ratio is above 1.5. Micron's price to book ratio is below the industry average. This is also true for the net profit margin and return on equity as well. Micron's projected growth rate for the next year is more than double the industry average. Institutional ownership exceeds 85 percent while the gross margin is less than 16 percent. Both the long-term and debt to equity ratios are below 0.3.The above numbers further emphasize that Micron is currently available at a discount due to its unappealing margins. Liquidity and debt are not an issue and the recent trends in stock price suggest that Micron could be headed towards a rebound for the remainder of 2012.
Due to the pessimism about the economic status worldwide, many stocks, including the tech industry have experienced recent declines in pricing. This creates an advantageous opportunity for investors to add valuable assets to their portfolio at a discount. This is the case with Micron as well as many others in various industries. Many analysts, including Jeffries & Co., feel Micron could double from its current stock price before the end of 2012. Micron is one of the leaders in the chip manufacturing industry and currently has reasonable levels of debt and capital on its balance sheet. An increase in its stock price throughout the remainder of 2012 will be driven by the advent and rise in popularity of Windows 8 along with the potential acquisition of Elpida. This acquisition would help Micron double its current market share and diversify its customer base as well.
Many analysts and firms, including Wells Fargo (WFC), have been looking beyond the recent reports of weak margins and more so at Micron's promising and diverse revenue dynamic. Many have rated Micron as outperform due to the expectations that the DRAM, NAND and NOR demand should increase throughout the remainder of 2012. An increase in DRAM sales drove revenue growth last quarter. The lower return on the NAND is what brought margins down for the quarter. Micron continues to improve its balance sheet and trends suggest that NAND demand will increase before the end of the year. This will be largely driven by seasonal increases of the availability of high-end technology products like tablets, phones and PCs.
There are a few reasons that Micron is an appealing investment. Micron is able to improve revenue with more efficient inventory management and by restructuring its current agreements with Intel. The memory market is expected to improve as the year progresses. The Elpida deal is intriguing because it is currently the third largest producer of DRAM and it also won a large order from Apple recently. Elpida currently has 17 percent market share in the DRAM industry. Apple is looking for alternatives to the leading supplier, Samsung (SSNLF), which currently serves around 50 percent of the DRAM market. Micron only has four percent but would benefit immensely by adding Elpida's 17 percent market share to their portfolio. Micron has exclusive negotiation rights at this point, but has no plans on overpaying or overextending its debt to make the acquisition. Micron will also benefit greatly as Microsoft's (NASDAQ: MSFT) new Windows OS is expected to revitalize the soft demand in the PC industry.
Micron executives exuded optimism and confidence in the earnings report for Q3 of 2012 in late June. Micron credits the lackluster NAND performance to an oversupply that was industry wide. Production in this area is going to on hold for the remainder of the year. Micron is focused on improving its cash flow and dependable ROI. Aside from the acquisition, Micron feels it has promising opportunities with its enterprise SSD products and Hybrid Memory Cube. These are premium products that can create higher margins with more customers regarding long-term projections for Micron. Micron also took steps to eliminate its Transform Joint Venture that was no longer a promising revenue earner. The majority of its investments will now go towards improving and diversifying its positioning in the memory market throughout the remainder of the year. Micron restructured its partnerships with Intel (NASDAQ: INTC) to pursue new NAND flash memory and emerging technologies as well.
The demand for higher density products and data servers from organizations like Google (GOOG) are expected to continue to be promising sources of revenue for Micron. The DRAM market share was definitely favorable; however specialty server market share doubled the overall DRAM market share. Success in the embedded enterprise SSD market, recovery demand in the PC industry and the eventual acquisition of Elpida all have the potential to double Micron's current stock price by 2013.
jewishitalian31 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Intel, and Microsoft. Motley Fool newsletter services recommend Apple, Intel, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.