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Semiconductor giant Micron Technology (NASDAQ: MU) saw its shares rise by more than 10% on December 21, valuing the company at a market cap of over $100 billion, at the time of writing.
Micron recently announced its fiscal first quarter of 2022 results that ended in October and reported revenue of $7.7 billion, which was 33% higher compared to the year-ago period. Its adjusted earnings per share almost tripled year over year to $2.16. Micron’s free cash flow stood at $673 million in Q1 compared to a negative cash flow of $771 million in the year-ago period.
Wall Street forecast Micron to report earnings of $2.11 per share in Q1. The company also forecast adjusted earnings between $1.85 and $2.05 per share, higher than estimates of $1.86 per share in Q2 of fiscal 2022. Its earnings beat and solid guidance for Q2 sent MU stock higher this week.
Let’s see what impacted Micron in Q1 and if the tech heavyweight remains a solid bet for long-term investors right now.
How did Micron perform in Q1?
Micron has managed to enhance its customer relationships despite supply chain challenges. More than 75% of its revenue comes from volume-based annual agreements which were higher than the 10% of sales they represented five years back. It entered into strategic agreements to secure the supply of certain components that are required to manufacture its products. Micron expects the tight supply of these components to improve in CY 2022 as a result of these agreements.
The company’s data center revenue rose over 70% year over year in Q1 due to cloud demand and increased enterprise-level investments. Comparatively, revenue from the mobile business surged 25% year over year as recent 5G devices feature more than 50% higher DRAM and double the NAND content compared to 4G phones.
Total smartphone sales are forecast to exceed 500 million units in CY 2021 and rise to 700 million units in CY 2022, which suggests Micron’s mobile unit will continue to report stellar top-line growth in the next four quarters.
What next for MU stock investors?
At the midpoint guidance, Micron’s sales forecast implies an increase of 20% year over year while adjusted earnings might rise by 99% in Q2. Further, company CEO Sanjay Mehrotra emphasized that Micron is on track to report record annual sales in fiscal 2022 which should cheer investors.
Mehrotra stated, “We are now shipping our industry-leading DRAM and NAND technologies across major end markets, and we delivered new solutions to data center, client, mobile, graphics and automotive customers. As powerful secular trends including 5G, AI, and EV adoption fuel demand growth, our technology leadership and world-class execution position us to create significant shareholder value in fiscal 2022 and beyond.”
The memory chips industry continues to grow at a stellar pace given the explosion of devices in the past two decades. These chips are in fact found in several consumer goods and multiple pieces of equipment making them a basic component. So, companies that manufacture memory chips such as Micron are extremely sensitive to even a small change in demand and supply which impacts their profit margins significantly across business cycles.
MU stock is still attractively valued
Analysts tracking MU stock expect sales to rise by 16% year over year to $32.16 billion and by 19.4% in fiscal 2022 to $38.4 billion in fiscal 2023. Comparatively, its adjusted earnings are forecast to rise by $6.06 per share in fiscal 2021 to $11.46 in fiscal 2023. We can see that MU stock is valued at a forward price to sales multiple of just over 3x and a price to earnings ratio of just 10x which is quite reasonable.
Micron continues to trade at an attractive valuation and is forecast to gain 20% in market value according to consensus estimates.
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