A Quick Analysis of This Tech Stock

With shares of Micron Technology Inc. (NASDAQ:MU) trading at around $7.89, is MU an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

mu

Following this story is like watching a Hollywood movie. As you might already know, U.S. bondholders opposed the Elpida deal. They felt that Elpida was worth closer to $4 billion. They also weren’t happy about “secret” meetings taking place in Japan. In addition to that, they claimed a lack of access to Tokyo court, and they felt there wasn’t enough transparency in general. That said, as always, it really came down to the money/value. However, it’s important to keep in mind that despite Elpida being Japan’s largest of DRAM chips, it was failing due to foreign competition and weak demand. A U.S. bankruptcy court judge in Delaware recently ruled that there was no collusion or improper motives in the Micron/Elpida deal, which was good news for Micron Technology and its investors.

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You might be wondering why Micron Technology would be interested in a failing company. The Elpida deal will make Micron Technology the second largest DRAM chip company in the world behind Samsung Electronics. It will also increase exposure in the consumer mobile space, and potentially add Apple (NASDAQ:AAPL) as a customer. This doesn’t guarantee success. Taking on a failing company will definitely have its challenges.

Now let’s take a look at Micron Technology without Elpida.

E = Equity to Debt Ratio Is Normal

The debt-to-equity ratio Micron Technology is normal. The balance sheet is in negative territory, but operating cash flow is $1.95 billion.

Debt-To-Equity

Cash

Long-Term Debt

MU

0.42

$2.27 Billion

$3.44 Billion

RMBS

0.57

$207.09 Million

$189.75 Million

 

T = Technicals on the Stock Chart Are Strong

Micron Technology hasn’t performed well over a three-year timeframe. However, the stock has performed well recently. Micron Technology has outperformed Rambus Inc. (NASDAQ:RMBS) for every timeframe listed below.

1 Month

Year-To-Date

1 Year

3 Year

MU

16.13%

24.37%

1.61%

-20.99%

RMBS

-1.51%

7.39%

-38.76%

-78.65%

S&P 500

3.65%

4.28%

15.62%

37.69%

 

At $7.89, Micron Technology is currently trading above all its averages.    

50-Day SMA

6.42

100-Day SMA

6.22

200-Day SMA

6.26

 

E = Earnings and Revenue Have Been Inconsistent  

In a world where at least 80 percent of companies have shown earnings and revenue growth since 2009, Micron Technology has been inconsistent in both areas.

2008

2009

2010

2011

2012

Revenue ($)in billions

5.84

4.80

8.48

8.79

8.23

Diluted EPS ($)

-2.14

-2.35

1.85

0.17

-1.04

 

When we look at the last quarter on a YoY basis, we see a decrease in earnings and revenue.

11/2011

2/2012

5/2012

8/2012

11/2012

Revenue ($)in billions

2.09

2.01

2.17

1.96

1.83

Diluted EPS ($)

-0.19

-0.29

-0.32

-0.24

-0.27

T = Trends Might Support the Industry

The industry has been suffering due to a weak PC demand. However, there are several potential catalysts for a trend change. These potential catalysts include Windows 8, Ultrabooks, PC-tablet convertibles as well as an expected increase in DRAM prices in 2013. There is also much less competition than in the past.

Conclusion

Micron Technology has potential going forward, but the key work there is “potential.” Despite Micron Technology having strong exposure with other memory segments, including NAND and NOR, this is still a company with negative margins, poor growth, and a risky investment. Micron Technology is a neutral WAIT AND SEE.

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