Micron: An Apple Derivative Play

By David Alton Clark
March 03, 2011

Micron Technology, Inc. (MU) is a manufacturer and marketer of semiconductor devices, principally dynamic random access memory (DRAM), Nandi Flash memory (NAND), Flash and NOR Flash memory, as well as other innovative memory technologies, packaging solutions and semiconductor systems for use in leading-edge computing, consumer, networking and embedded and mobile products. In addition, the Company manufactures semiconductor components for complementary metal-oxide semiconductor (CMOS) image sensors and other semiconductor products. Micron is a major supplier for Apple (AAPL) products.

 

Apple News

On March 2, 2011, Steve Jobs introduced Apple's iPad 2. Despite a medical leave starting in January, Jobs stated he " just couldn't stay away from the unveiling of the iPad 2." Apple's iPad2 features an entirely new design that is 33 percent thinner and up to 15 percent lighter than the original iPad while maintaining the same 9.7-inch LED-backlit LCD screen and up to 10 hours of battery life. iPad 2 also features Apple’s new dual-core A5 processor for blazing-fast performance and stunning graphics and now includes two cameras — a front-facing VGA camera for Face Time and Photo Booth and a rear-facing camera that captures 720p HD video. iPad 2 is available in black or white, features models that run on AT&T’s (T) and Verizon’s (VZ) 3G networks, and introduces the innovative iPad 2 Smart Cover in a range of colors. iPad 2 will be available on March 11 in the US through the Apple Online Store, Apple Retail Stores, and select Apple Authorized Resellers.

 

Apple’s stock rose over 2 per cent immediately after Jobs began speaking. The pricing will be identical to the 2010 iPad at its introduction, ranging from $499 to $829 in six models. Apple has made the most of a head start in tablets, selling 15m units last year, which was 85 per cent of the market. AAPL dropped prices on the older iPad on Wednesday by $100. Forrester predicted that Apple’s fresher tablet would garner 80 per cent of the US market this year. If Apple executes, this bodes well for Apple's suppliers such as Micron. History is on Apple's side.

 

Micron's Current Growth Rate and Price to Earnings Ratio

MU's PE ratio is among the lowest of any stock in the semiconductors industry at 6.2. Compare this with the PEs of others: Intel (INTC) 10.6, NVIDIA (NVDA) 51.8, Marvell Tech (MRVL) 13.7, and Broadcom (BRCM) at 20.4 to name a few. Additionally, during the past year, earnings growth has outpaced MU's historical five year growth rate. Micron's GPE (Growth to PE Ratio) is another popular measure of stock valuation. GPE compares earnings growth rate to PE ratio. MU has a GPE rating of 3.28. A stock is commonly considered to be undervalued when GPE is greater than 1.00 and overvalued when GPE is below 1.00. MU may be considered to be highly undervalued with a GPE of 3.28. Based on my analysis, I believe MU would be fairly valued at a share price of approximately $16.00. This is a 44% premium to the current share price of $11.09.

 

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Note: I do own shares in this company. It is not a recommendation to buy or sell this share. I am pleased some other professional analysts have the same point of view on this share. Let's hope the iPad 2 will generate more sales and demand more microchips from MU ! Please make up your own investing decision.