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Micron Technology Inc. Annual Valuation – 2014 $MU

220px-Micron_Technology_logo.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies for the Enterprising Investor Near 52 Week Lows – November 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Micron Technology Inc. (MU) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Micron Technology, Inc., is a global manufacturer and marketer of semiconductor devices, principally NAND Flash, DRAM and NOR Flash memory, as well as other memory technologies, packaging solutions and semiconductor systems for use in computing, consumer, networking, automotive, industrial, embedded and mobile products. In addition, the Company manufactures semiconductor components for CMOS images sensors and other semiconductor products. The Company operates in four segments: NAND Solutions Group (NSG), DRAM Solutions Group (DSG), Wireless Solutions Group (WSG) and Embedded Solutions Group (ESG). The Company’s product include NAND Flash Memory, Dynamic Random Access Memory (DRAM) and NOR Flash Memory. The Company’s manufacturing facilities are located in the United States, China, Israel, Italy, Malaysia, Puerto Rico and Singapore. Effective August 11, 2014, Micron Technology Inc acquired an undisclosed minority stake in Kingston Solutions Co Ltd.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – FAIL
  4. Dividend Record – currently pays a dividend – FAIL
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $33.19
MG Value $41.81
MG Opinion Fairly Valued
Value Based on 3% Growth $15.75
Value Based on 0% Growth $9.23
Market Implied Growth Rate 11.03%
Net Current Asset Value (NCAV) -$1.23
PEmg 30.56
Current Ratio 2.13
PB Ratio 3.71

Balance Sheet – August 2014

Current Assets $10,245,000,000
Current Liabilities $4,811,000,000
Total Debt $4,955,000,000
Total Assets $22,498,000,000
Intangible Assets $468,000,000
Total Liabilities $11,727,000,000
Outstanding Shares 1,204,000,000

Earnings Per Share

2014 $2.54
2013 $1.13
2012 -$1.04
2011 $0.17
2010 $1.85
2009 -$2.35
2008 -$2.10
2007 -$0.42
2006 $0.57
2005 $0.29

Earnings Per Share – ModernGraham

2014 $1.09
2013 $0.22
2012 -$0.38
2011 -$0.23
2010 -$0.45
2009 -$1.33

Dividend History
Micron Technology does not pay a dividend.

Conclusion:

Micron Technology Inc. does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned by the lack of earnings stability over the last ten years, lack of dividend payments, and the high PB and PEmg ratios.  The Enterprising Investor is similarly concerned by the lack of earnings stability over the last five years along with the lack of dividend payments.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time.  From a valuation side of things,  the company appears to be fairly valued after growing its EPSmg (normalized earnings) from a loss of $0.45 in 2010 to an estimated $1.09 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 11.03% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Micron Technology Inc. (MU)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Micron Technology Inc. (MU) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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