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Is Micron A Top Value Pick After Its Q3 Earnings?

Micron Technology reported impressive earnings results last night that surpassed analyst estimates, but is it a good long-term investment?

Micron Technology (NASDAQ: MU) made a comeback after its Q1 2022 results today following a relatively flat year for the company’s shares. The positive results are boosting sentiment for the company’s prospects, so let’s take a look at Micron’s possibilities as a potential investment.

What does Micron do?

Micron’s three core markets are data center, PC & graphics, mobile, and intelligent edge which can subsequently be split up into sectors inclusive of autonomous driving, industrial automation, and 5G technology, to name a few.

It operates across three continents — North America, Europe, and Asia — and provides the data solutions and memory chips for some of the largest multinationals in the world, including Amazon, Alibaba, Starbucks, and Nike

What is Micron’s market opportunity?

Micron specializes in memory and storage solutions, pooled in with the greater semiconductor industry. Global memory chip markets are expected to grow to $367 billion by 2024, or a 16% compound annual growth rate (CAGR). Its primary revenue segment, dynamic random access memory (DRAM) is valued at $66 billion right now but it is expected to grow to $100 billion globally by 2026.

Micron’s Q3 results

The company beat on earnings per share (EPS) reporting $2.16 v.s. $2.11 forecast by analysts’ estimates. Revenue came in at $7.7 billion compared to $5.8 billion last year, and gross margins also expanded dramatically on a YoY basis, from 31% in the same quarter last year to 47% now.

There was strong revenue growth across all segments but in particular, data center revenue grew by 70% YoY, and industrial internet-of-things (IoT) revenue grew 80% YoY. The company also made progress on other partnerships, such as with its memory chips crafted for AMD’s graphics cards. 

Is it a good investment now?

At a price to earnings (P/E) ratio of just 17, you might think shares are a steal. It’s certainly been a strong pick for long-term investors so far. Just in the last five years, the company has doubled revenue, quadrupled operating cash flow, and more than 5x’d free cash flow.

Its net cash position has grown to over $4.4 billion now, and on top of that, the company has upped its guidance for fiscal year (FY) 2022. It strongly believes the agreements it has in place will allow the company to navigate ongoing chip shortages but it also expects the problems to diffuse in 2022 and beyond.

Conclusion

It’s important for investors to remember, not all semiconductor companies are created equal. Micron, however, looks to be positioned extremely well. By operating in high-margin innovative segments, the business is looking to continue to capitalize on the growth opportunities ahead.

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