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Embattled semiconductor company Micron Technology (NASDAQ: MU) has endured a tough year. Micron stock is down close to 60% from its 52-week high. The reason is that global PC shipments are slowing down this year, which is hurting its core dynamic random access memory (DRAM) business. This caused Micron’s revenue and gross margin to decline in its fiscal third quarter.
On Thursday, Micron got some momentum back. The company released better-than-expected earnings for its fiscal fourth quarter and the stock jumped 7% in after-hours market trading. It carried that momentum into Friday’s trading session, closing the day up 7.7%.
A Low Bar to Clear
One thing that helped Micron beat expectations was that the expectations themselves were quite modest. Analysts sharply took down their estimates for the company in recent weeks, which made for a relatively easy hurdle to clear.
Revenue fell 14% year-over-year, to $3.6 billion. Still, that figure beat the average analyst estimate, which called for $3.55 billion. Earnings fell 59% to $471 million, or $0.42 per share. Excluding some one-time items, the company earned an adjusted $0.37 per share. That too beat forecasts. Analysts only expected $0.32 per share of adjusted EPS.
Fortunately, while the environment is tough on the DRAM side of the business, Micron has a strong NAND flash memory business. Flash NAND chips are utilized in smartphones and many other types of mobile devices. The chips help improve storage of music, pictures and other data.
Forecast Improves Slightly
Another factor that is likely helping investors breathe a sigh of relief was Micron management’s outlook for the remainder of the year. The company said it expects demand to stabilize in the near term, and left the possibility open for improvement through the upcoming fiscal year. Importantly, management sees pricing for PC chips leveling out, after a painful period of price deflation this year.
This is what occurred when PC shipments slowed earlier this year. Information technology industry research firm IDC stated that worldwide PC shipments fell 11% in the second quarter.
Management’s updated view does not sound like a ringing endorsement for the PC industry, but management’s comments were actually more positive than last quarter, when expectations were for declines.
Valuation Looks Attractive
Micron Technology does not pay a dividend, so income investors should probably look elsewhere. But value investors may see reasons to like the stock. That’s because thanks to its punishing drop in share price, Micron is a cheap stock.
Micron stock trades for just 5 times trailing earnings per share. Of course, that’s because Micron’s profits are expected to decline 28%, to $1.91 per share, in fiscal 2016. Even so, the stock trades for just 7 times forward EPS estimates. That’s still an attractive valuation, considering the S&P 500 index is valued at about 20 times EPS.
Micron’s 7.7% bounce Friday is at least an indication that investors are willing to pay a higher price for the stock, as long as the company continues to beat estimates going forward.
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