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Why Micron (MU) Deserves a Place in Investors' Portfolio?
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Stocks showing momentum and with enough prospects are the ones that investors like to add to their portfolio. Below we have evaluated one such technology company, Micron Technology, Inc. (MU - Free Report) . It has gained solid momentum in the last six months and seems to have potential for further growth.
The stock has gained approximately 64.2%, outperforming the Zacks categorized Electronic-Semiconductor industry’s return of just 17.6%.
Let’s look at the reasons behind Micron’s solid momentum.
What’s Driving the Stock?
The main reason behind the optimism surrounding the stock is improving prices for DRAM and NAND chips, which makes investors confident about Micron’s growth. Per various sources, DRAM and NAND prices have improved primarily due to a better product mix optimization and stronger-than-expected demand for PCs, servers and mobiles.
The benefit from improved pricing is well reflected in the company’s last quarterly results. The company’s first-quarter fiscal 2017 revenues not only increased 18.5% on a year-over-year basis, but also surpassed the Zacks Consensus Estimate of $3.784 billion. Most importantly, it witnessed a 5% increase in DRAM average selling prices (ASP) during the quarter.
The company’s first quarter adjusted earnings per share (excluding the impact of one-time items but including stock-based compensation expense) of 28 cents came ahead of the Zacks Consensus Estimate as well as the year-ago quarter’s figure of 24 cents.
An encouraging top- and bottom-line guidance for the second quarter, way above the respective Zacks Consensus Estimate, also helped in boosting investors’ confidence about the company’s future prospects.
Micron Technology Inc. Price, Consensus and EPS Surprise
In the last 30 days, the Zacks Consensus Estimate for the second quarter and fiscal 2017 witnessed upward revisions. For the fiscal second quarter, the Zacks Consensus Estimate is currently pegged at 54 cents per share, up 13 cents from earnings of 41 cents projected 30 days ago. The Zacks Consensus Estimate for fiscal 2017 is currently pegged at $1.80 cents per share compared with $1.75 projected 30 days ago.
Other Driving Factors
It should be noted that Micron has been expanding in SSD storage due to the decline in the PC market. Notably, SSDs are faster and more energy efficient than traditional hard drives. These are also used in servers due to lower latency, thereby facilitating faster response to real-time applications.
Notably, the company has an interesting partnership with Seagate (STX - Free Report) . Under the agreement, Micron supplies a significant portion of Seagate’s NAND requirement. In return, Seagate shares its SAS SSD technology with Micron – a key technology – that the latter lacks in the enterprise SSD market. We believe that this deal will continue to expand Micron’s high-value enterprise SSD portfolio.
Additionally, Micron recently completed the acquisition of Inotera. Considering the current market conditions, the company anticipates this buyout to be accretive to its DRAM gross margin, earnings per share and free cash flow.
According to the company, the acquisition will also have some operational benefits, leading to efficient management of investment levels and cadence followed by alignment with global manufacturing operations.
The company anticipates the aforementioned factors to also have a positive impact on its second-quarter fiscal 2017 results.
Bottom Line
Looking at the improving selling prices for DRAM and strategic initiatives of expanding in the SSD market, we consider that Micron is one such technology stock which will be worthy of remaining in investors’ portfolio.
On the valuation front too, the stock looks attractive. The company currently trades at a forward P/E multiple of 12.4x, significantly lower than the Zacks categorized Electronics-Semiconductor industry average of 14.9x. The ratio, which is obtained by dividing a stock’s current market price with its historical or estimated earnings, measures how much an investor needs to shell out per dollar of earnings. Therefore, lower the P/E of a stock, the better for a value investor.
Hence, we believe that there is still much momentum left in this Zacks Rank #2 (Buy) stock, which is quite evident from its VGM Style Score of “A” and long-term earnings growth rate of 10%.
The stock has grabbed the spotlight with striking performances on the back of solid earnings results and robust growth projections. Keeping this in mind, we perceive that investing in this stock will yield strong returns in the short term.
Applied Optoelectronics and Broadcom have an expected long-term EPS growth rate of 18.3% and 13.6%, respectively.
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Why Micron (MU) Deserves a Place in Investors' Portfolio?
Stocks showing momentum and with enough prospects are the ones that investors like to add to their portfolio. Below we have evaluated one such technology company, Micron Technology, Inc. (MU - Free Report) . It has gained solid momentum in the last six months and seems to have potential for further growth.
The stock has gained approximately 64.2%, outperforming the Zacks categorized Electronic-Semiconductor industry’s return of just 17.6%.
Let’s look at the reasons behind Micron’s solid momentum.
What’s Driving the Stock?
The main reason behind the optimism surrounding the stock is improving prices for DRAM and NAND chips, which makes investors confident about Micron’s growth. Per various sources, DRAM and NAND prices have improved primarily due to a better product mix optimization and stronger-than-expected demand for PCs, servers and mobiles.
The benefit from improved pricing is well reflected in the company’s last quarterly results. The company’s first-quarter fiscal 2017 revenues not only increased 18.5% on a year-over-year basis, but also surpassed the Zacks Consensus Estimate of $3.784 billion. Most importantly, it witnessed a 5% increase in DRAM average selling prices (ASP) during the quarter.
The company’s first quarter adjusted earnings per share (excluding the impact of one-time items but including stock-based compensation expense) of 28 cents came ahead of the Zacks Consensus Estimate as well as the year-ago quarter’s figure of 24 cents.
An encouraging top- and bottom-line guidance for the second quarter, way above the respective Zacks Consensus Estimate, also helped in boosting investors’ confidence about the company’s future prospects.
Micron Technology Inc. Price, Consensus and EPS Surprise
Micron Technology Inc. Price, Consensus and EPS Surprise | Micron Technology Inc. Quote
Upward Estimate Revisions
In the last 30 days, the Zacks Consensus Estimate for the second quarter and fiscal 2017 witnessed upward revisions. For the fiscal second quarter, the Zacks Consensus Estimate is currently pegged at 54 cents per share, up 13 cents from earnings of 41 cents projected 30 days ago. The Zacks Consensus Estimate for fiscal 2017 is currently pegged at $1.80 cents per share compared with $1.75 projected 30 days ago.
Other Driving Factors
It should be noted that Micron has been expanding in SSD storage due to the decline in the PC market. Notably, SSDs are faster and more energy efficient than traditional hard drives. These are also used in servers due to lower latency, thereby facilitating faster response to real-time applications.
Notably, the company has an interesting partnership with Seagate (STX - Free Report) . Under the agreement, Micron supplies a significant portion of Seagate’s NAND requirement. In return, Seagate shares its SAS SSD technology with Micron – a key technology – that the latter lacks in the enterprise SSD market. We believe that this deal will continue to expand Micron’s high-value enterprise SSD portfolio.
Additionally, Micron recently completed the acquisition of Inotera. Considering the current market conditions, the company anticipates this buyout to be accretive to its DRAM gross margin, earnings per share and free cash flow.
According to the company, the acquisition will also have some operational benefits, leading to efficient management of investment levels and cadence followed by alignment with global manufacturing operations.
The company anticipates the aforementioned factors to also have a positive impact on its second-quarter fiscal 2017 results.
Bottom Line
Looking at the improving selling prices for DRAM and strategic initiatives of expanding in the SSD market, we consider that Micron is one such technology stock which will be worthy of remaining in investors’ portfolio.
On the valuation front too, the stock looks attractive. The company currently trades at a forward P/E multiple of 12.4x, significantly lower than the Zacks categorized Electronics-Semiconductor industry average of 14.9x. The ratio, which is obtained by dividing a stock’s current market price with its historical or estimated earnings, measures how much an investor needs to shell out per dollar of earnings. Therefore, lower the P/E of a stock, the better for a value investor.
Hence, we believe that there is still much momentum left in this Zacks Rank #2 (Buy) stock, which is quite evident from its VGM Style Score of “A” and long-term earnings growth rate of 10%.
The stock has grabbed the spotlight with striking performances on the back of solid earnings results and robust growth projections. Keeping this in mind, we perceive that investing in this stock will yield strong returns in the short term.
A couple of other stocks worth considering in the broader technology sector are Applied Optoelectronics, Inc. (AAOI - Free Report) and Broadcom Ltd. (AVGO - Free Report) , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Applied Optoelectronics and Broadcom have an expected long-term EPS growth rate of 18.3% and 13.6%, respectively.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>