Micron Technologies is a blue-chip tech stock trading at a deep value.
The company’s weak guidance may already be priced into the stock.
Micron Technologies has a healthy balance sheet and is well-positioned for a slowdown.
Shares of Micron Technology (NASDAQ: MU) are down nearly 50% from their post-pandemic highs, driven by the same malaise as other parts of the market, and now presenting a very memorable time to buy.
At these levels, near $50, the stock is valued at a mere 6X its earnings and this is a blue chip tech stock fundamental to the global economy we’re talking about. Even Intel (NASDAQ:INTC) trades at nearly twice the value and it’s no flashy name itself, not one worth such a large premium in the face of a slumping market anyway.
The takeaway is that the shares of Micron are trading at a firm level of support, the company is outperforming expectations, and is well-positioned for the downturn in business and so attractively priced at these levels.
Micron circles the wagon following mixed quarter
Micron had a tough quarter but not one without good news although the good news was sparse. The company reported $6.64 billion in revenue for a decline of 19.7% versus last year and missed the consensus by 200 basis points which are not good news.
The downturn was driven by a decline in demand versus last year’s pandemically-driven peak that is expected to extend into next year. The NAND and DRAM markets are well-supplied at this time and undergoing an inventory correction that has been brewing for the last two quarters or so.
The margin is also a source of bad news but not quite as bad as expected, which is the good news. The company reported a contraction in the GAAP and adjusted margin at the gross and operating levels due in large part to deleveraging in the face of slowing sales.
Operating expenses held relatively flat on a sequential and YOY basis (up in both comparisons but slightly) which cut deep into the bottom line. The good news is that adjusted EPS of $1.45 came in $0.08 better than expected although it is down about a dollar from last year and the guidance isn’t awesome.
Micron is guiding FQ1 to revenue of $4.25 billion plus or minus a quarter billion. This is not only down sequentially and YOY but the weakest quarterly outlook in many years, since well before the pandemic, and more than 2500 basis points below the current consensus. The revenue weakness is going to lead to earnings of $0.04 to $0.10 as well, which is another big whiff.
Micron’s balance sheet is ready for the slowdown
Micron has a very healthy balance sheet that includes $11 billion in cash and securities and a net-cash position of $4.15 billion which is enough to support the dividend and the buyback plan over the next year with no changes.
As it is, the company bought back $2.43 billion in fiscal 2022 and started paying a dividend. The yield is worth 0.85% but comes with an ultra-low payout ratio and a very healthy balance sheet so there is a positive outlook for distribution increases although maybe not this year.
The technical outlook: Micron moves up from support
Shares of Micron gained nearly 3.0% in early trading and look like they may be putting in a bottom. The near-term outlook is bullish but may be capped at the short-term moving average so caution is due.
A move above the EMA would be bullish and could lead to a fuller reversal but general market conditions may put a lid on that for the foreseeable future. Longer-term, if the stock can put in a solid bottom a reversal is likely in the back half of 2023 once the memory-chip market restabilizes and production begins to ramp again.