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Categories: 3d Xpoint Micron

Despite the nearly 100% run-up over the last year, @Micron’s stock is still extremely cheap, trading at below 5 times this year’s projected earnings.
The company has shown remarkable improvements in profitability in recent quarters, significantly expanding gross margins and growing the bottom line substantially.
However, the million dollar question remains: Can this level of earnings prowess be sustainable?
Nevertheless, the company’s EPS should remain around these levels in 2019, and could even expand going forward.
Micron’s earnings are likely to stabilize around the $12 EPS mark, and could even proceed modestly higher after that. Thus the company’s multiple expansion should continue.

Micron: Multiple Expansion to Drive Stock Price Higher
Micron (MU) is a unique company, a tech stock that has essentially doubled over the last year, yet it still trades at a P/E ratio of under 5. This is abnormally cheap, as you very seldom see stocks trading at such rock bottom valuations, especially in this market. After all, the S&P 500 currently trades at P/E above 24, more than 5 times Micron’s valuation, the Nasdaq trades at a P/E of about 27, and other chip makers like Advanced Micro Devices (NASDAQ:AMD) trade at even higher multiples.

MU data by YCharts
So, what is it about Micron that’s keeping a tight lid on the stock’s valuation? Such a low P/E multiple implies that the market doesn’t believe Micron’s current level of earnings can be sustained. Moreover, it suggests that market participants fear of a possible earnings contraction on the horizon. However, if Micron can stabilize its current level of earnings prowess and possibly improve earnings potential going forward a multiple expansion coupled with a significantly higher share price appear very likely for the company.

Micron’s Increasing Profitability
Micron has beat EPS estimates in each of the last 4 quarters.
Q3 Revenue: $7.8 billon, up 40% YoY.
Q3 GAAP income: $3.82 billion, $3.10 EPS, 136% YoY increase.
Q3 Operating cash flow: $4.26 billion, 77% YoY increase.
The most recent quarterly report showed a gross margin of 60%, substantially higher than the 46% delivered in the same quarter 1-year ago. In addition, for the 9-month period ended last quarter Micron’s gross margin was about 58%, compared to just 37.5% for the same period a year earlier. If we look at revenues, sales surged to nearly $22 billion in the 9-month period, rising by more than 50% from the $14.18 billion achieved in the 9-month period 1-year ago. However, the cost of goods sold COGS increased by only 4% in the period.