MICRON Stock Analysis
- SGFIREMAN
- Sep 20, 2022
- 2 min read
MICRON is one of three major leaders in the computer memory business, consistently having between 20% to 25% of the global market share since 2013. MICRON's key storage technologies includes DRAM (volatile memory typically used by CPUs for its speed) and NAND (non-volatile flash memory typically used in SSDs and smartphones).
QUANTITATIVE ANALYSIS
For MICRON's sustainable earnings, in view of potential US recession and global uncertainties, 80% of the earnings will be projected. In addition, to keep things simple, we will assume no growth. Additional 20% margin of safety will be added to be conservative.
Enterprise Value: Market Cap (@$52.36) + Debt - Cash Equivalent - Equity | (1,103,145,108*$52.36)+$0.107B - $9.157B - $1.07B = $47.64B* *currently lower than book value |
Sustainable Earnings (TTM + projected Q4): Earnings Before Tax*(1-Tax Rate) | $1.5B (Q4FY22) + $2.9B (Q3FY22) + $2.263B (Q2FY22) + $2.306B (Q1FY22) = $8.969B |
Earnings Power Value of Equity: Sustainable Earnings/Expected Rate of Return - Debt + Cash Equivalents + Equity | ($8.969B*0.8)/0.1- $0.107B + $9.157B + $1.07B = $81.872B |
Fair Entry Price: Earnings Power Value/Number of Shares | 0.8*$81.872B/(1,103,145,108) = $59.37 |
Safe Entry Price: Earnings Power Value/Number of Shares | 0.5*$81.872B/(1,103,145,108) = $37.11 |
1 Year Exit Price: Earnings Power Value/Number of Shares | 1.2*$81.872B/(1,103,145,108) = >$88.8 |
Accumulation range: $37.11 to $59.37 (average price is $48)
Comments:
(1) At 10% expected rate of return, it takes 10 years to "break even".
QUALITATIVE ANALYSIS
Strength: MICRON is a leader in its technologies and has stable and consistent market share, making it likely to continue for the longer term. It also has strong balance sheet to sustain through negative economic conditions.
Weakness: MICRON is in a business that is traditionally cyclical, and recent revenue weakness in Q3FY22 and lower projections seems to correlate with that. However, thus far, the long term secular trend is still upwards.
Threats: The biggest threat would be a geopolitical flash point in Taiwan, where MICRON has manufacturing facilities. A conflict in Asia will also affect economic growth and reduce MICRON's profitability.
Opportunity: MICRON stands to benefit from the continual trend of digitalisation, especially in the growth of data centres (30% digital tax according to Mohnish Pabrai), software-centric automobiles, and use of artificial intelligence.
OVERALL ASSESSMENT
Berkshire has strong track record and leadership over decades and have consistently increase its value. At the right price, Berkshire will continue to deliver value over the long term.
REFERENCES
https://www.youtube.com/watch?v=NVBfJDCDaLw https://www.statista.com/statistics/271726/global-market-share-held-by-dram-chip-vendors-since-2010/
*Disclaimer: All views represented are personal and do not constitute as financial advise
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