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Micron Technology, Inc. (MU): Bad Juju or Good Momo

There are some stocks where you look at their charts and you just wonder why would anyone buy it? You look at negative earnings per share, no yield, and a very troubled history. Just how is this zombie still walking?

I look at Micron Technology, Inc. (NASDAQ:MU) with a sense of wonder, wondering how they are managing to stay upright. A year ago it was hit with the tragic death of their CEO in a small plane crash, sad, but the stock was already cut off at the knees by low prices for its DRAM (dynamic random access memory) chips.

Micron Technology, Inc. (NASDAQ:MU)Once upon a time Micron was an $80 stock. It dipped below $2.00 in late 2008. This is almost in line with the decline in chip prices from $8 to under a dollar. If you bought at that bottom you would have had more than a quadruple but is it going anywhere from here?

Micron currently has -$1.12 EPS but a 14.92 forward P/E. The latest loss for Q1 2013 of $275 million reported on December 20 makes for a string of six consecutive quarterly losses. It also marked a worse than expected loss of -$0.27 per share. The company reports again on March 18.

Strengths

  • Despite the sudden death of CEO Steve Appleton, current CEO Mark Durcan stayed on for a seamless transition although he had already announced plans to retire.
  • The company was able to acquire Japanese DRAM maker Elpida Memory and the Elpida gross margins had risen 26% by Q4 causing Jefferies to reiterate Micron a Buy on February 8. Elpida doubles Micron’s share of the memory market when the deal finally closes the first half of this year.
  • The company just priced a $270 million convertible senior note offering coming due in 2033 and with corporate debt so cheap, this can be seen as a positive for the company.
  • Prices for DRAM have increased significantly since last fall and as the 2nd largest DRAM manufacturer in the world after Samsung, Micron is poised to profit at the same time as the cost of manufacturing is going down.
  • The successful resolution of the Rambus lawsuit in Micron’s favor ends multiyear legal wrangling over DDR memory chip royalties which Micron does not have to pay to Rambus.
  • Corporate governance risks are low for all metrics: Board, Audit, Compensation, and Shareholders’ Rights.
  • Analysts expect a 198.10% EPS growth rate over the coming year to average out to a 14.04% growth rate over the next five years.

Weaknesses

  • The DRAM and NAND markets are volatile with wild swings on price and supply. Just like the dry bulk shipping index chip prices are updated daily on an exchange.
  • The company’s multi-year billion dollar losses and the purchase of Elpida for $2.2 billion have stretched the Boise based company thin. Hopefully, the senior note offering and delays in payment on the Elpida deal while the yen goes lower will help ease these stresses.
  • The demand for PCs gets weaker and weaker and Micron has already suffered due to this trend. Microsoft Corporation (NASDAQ:MSFT)‘s Windows 8 and Surface hybrid should improve demand somewhat and should provide a small lift for Micron.
  • Return on equity (-12.51%) and net income have decreased over the last year and the company is underperforming its semiconductor peers and the S&P 500.

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