A Closer Look At Our $60 Price Estimate For Micron Technology

by Trefis Team
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Micron Technology
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Micron (NYSE:MU) has seen impressive growth in recent years. The company’s revenue grew 64% and its stock price doubled in 2017. The company expects the favorable demand-supply environment to persist in the year ahead, supported by continued strong growth in both DRAM and NAND demand, reflecting broader trends in the data center and mobile markets as well as increased adoption of SSDs across enterprise, cloud, and client PCs.

Currently, we have a price estimate for Micron Technology of $60, which is ahead of the market price. We have also created an interactive dashboard which shows our forecasts and estimates for the company; you can modify the key value drivers to see how they impact the company’s revenues, bottom line, and valuation.

We have arrived at our price estimate for Micron Technology based on EPS projections of $10.91 for 2018, and a P/E multiple of 5.5.

Steps To Arrive At Our Price Estimate

Micron generates revenue from three primary sources – DRAM, Trade NAND, and Other Products. Emerging technologies such as cloud computing, big data, and artificial intelligence are driving strong growth in the industry, while innovation and solid execution has enabled Micron to grow faster than the market. Micron’s DRAM revenue represents 67% of the total revenue, with 80% year-on-year growth. This was due to an increase in bit shipments, slightly offset by a decline in ASPs (Average Selling Price). For fiscal 2018, we expect another 53% growth in DRAM revenue due to the timing of the DRAM technology transition.

Micron’s Trade NAND revenue increased 51% y-o-y, driven by an increase in bit shipments, slightly offset by a decline in ASPs. Based on the timing of the technology transition, Micron expects its bit growth in NAND to be relatively muted in the first half of fiscal 2018, but expects stronger growth in the second half of the year.

Additionally, we expect a 15% growth in revenue from other products.

A revenue estimate of about $29.5 billion results in net income of $13.6 billion, assuming a net margin of 46%. Given the average share count of 1.25 billion, this gives us Earnings per share of $10.91. We estimate a P/E multiple of around 5.5 for the company which, when multiplied by the expected EPS, gives us $60 as a fair price estimate.

 

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