Is Micron Technology undervalued based on future cash flows and its price relative to the stock market?
Value is all about what a company is worth versus what price it is available for. If you went into a grocery store and all the bananas were on sale at half price, they could be considered undervalued.
INTRINSIC VALUE BASED ON FUTURE CASH FLOWS
Here we compare the current
share price of Micron Technology to its discounted cash flow value.
The discounted cash flow value is simply looking at what the company is worth today, based on estimates of how much money it is expected to make in the future.
How is this discounted cash flow calculated?
Amount off the current price Micron Technology is available for.
Share price is $35.95 vs Future cash flow value of $54.13
Current Discount Checks
For Micron Technology to be considered undervalued it must be available for at least 20% below the current price. Less than 40% is even better.
- Micron Technology's share price is below the future cash flow value, and at a significant discount (> 20%).
- Micron Technology's share price is below the future cash flow value, but not at a substantial discount (< 40%).
We assess Micron Technology's value by looking at:
- Is the discounted cash flow value less than 20%, or 40% of the share price? (2 checks) (Click here or on bar chart for details of DCF calculation.)
- Is the PE ratio less than the market average, and/ or less than the Semiconductors industry average (and greater than 0)? (2 checks)
- Is the PEG ratio within a reasonable range (0 to 1)? (1 check)
- Is the PB ratio less than the Semiconductors industry average (and greater than 0)? (1 check)
Micron Technology has a total score of 5/6, see the detailed checks below.
Note: We use GAAP Earnings per Share in all our calculations including PE and PEG Ratio.
Note 2: PEG ratio is based on analysts EPS growth expectations in 1 year (123.96%).
Full details on the Value part of the Simply Wall St company analysis model.
Discounted cash flow (Free cash flow to Equity)
The calculations below outline how an intrinsic value for Micron Technology is arrived at by discounting future cash flows to their present value. We use analyst's estimates of cash flows going forward 5 years.
5 year cash flow forecast
See our documentation to learn about this calculation.
|Levered FCF (USD, Millions)
||Extrapolated @ (16%, capped from 16.59%)
Discounted (@ 9.6%)
Present value of next 5 years cash flows:
Terminal Value = FCF2021 × (1 + g) ÷ (Discount Rate – g)
Terminal Value = $4,778 × (1 + 2.3%) ÷ (9.64% – 2.3%)
Terminal value based on the Perpetuity Method where growth (g) = 2.3%:
Present value of terminal value:
Equity Value (Total value) = Present value of next 5 years cash flows + terminal value
Value = Total value / Shares Outstanding ($60,088 / 1,110)
Value per share:
Current discount (share price of $35.95): 34%
Estimate of Discount Rate
The discount rate, or required rate of return, is estimated by calculating the Cost of Equity.
Discount rate = Cost of Equity = Risk Free Rate + (Levered Beta * Equity Risk Premium)
Discount rate = 9.64% = 2.33% + (0.952 * 7.67%)
Estimate of Bottom Up Beta
The Levered Beta is the Unlevered Beta adjusted for financial leverage. It is limited to 0.8 to 2.0 (practical range for a stable firm).
Levered Beta = Unlevered beta (1 + (1- tax rate) (Debt/Equity))
0.952 = 0.791 (1 + (1- 30%) (29.25%))
Levered Beta used in calculation = 0.952
- The risk free rate of 2.33% is from the 10 year government bond rate in US.
- The bottom-up beta is estimated by analysing other companies in the same industry.
- The Equity Risk Premium is calculated by subtracting the risk free rate from the market return premium (10%) (source: Buffet).
- The dividend discount model is automatically used for companies in the following industries: Banks, Insurance, Real Estate Investment Trusts (REITs), Diversified Financial Services and Capital Markets.
How is Micron Technology expected to perform in the next 1 to 3 years based on estimates from 27 analysts?
The future performance of a company is measured in the same way as past performance, by looking at estimated growth and how much profit it is expected to make.
Future estimates come from professional analysts. Just like forecasting the weather, they don’t always get it right!
Expected earnings growth over 3 years.
Future Earnings growth analysis
Is Micron Technology expected to grow at an attractive rate? We look at the 1 year and 3 year growth below.
Are Micron Technology's annual earnings growth expected to exceed 3.4% over the next 3 years?
- After 1 year
- After 3 years
1 & 3 year estimated growth in earnings
Past and Future Earnings per Share
The accuracy of the analysts who estimate the future performance data can be gauged below. We look back 3 years and see if they were any good at predicting what actually occured. We also show the highest and lowest estimates looking forward to see if there is a wide range.
Analysts growth expectations
2 year growth check
Which of the these is expected to increase by over 50% in 2 year's time?
Performance in 3 years
In the same way as past performance we look at the future estimated return (profit) compared to the available funds. We do this looking forward 3 years.
- Micron Technology is not expected to perform strongly, Return on Equity (ROE) in 3 years is estimated to be below 20%.
Improvement & Relative to industry
- Expected to be less than the Semiconductors industry average.
- A decline in Micron Technology's performance (ROE) is expected over the next 3 years.
Future performance checks
We assess Micron Technology's future performance by looking at:
- Is the growth in earnings expected to beat the low risk savings rate, plus a premium to keep pace with inflation, in 1 year and 3 years? (2 checks)
- Does the average analyst expect Revenue to increase by 50% or more in 2 years? (1 check)
- Does the average analyst expect Operating Cash Flow to increase by 50% or more in 2 years? (1 check)
- Does the average analyst expect Net Income (Profit) to increase by 50% or more in 2 years? (1 check)
- Is the Return on Equity in 3 years expected to be over 20%? (1 check)
Some of the above checks will fail if the company is expected to be loss making in the relevant year.
Micron Technology has a total score of 4/6, see the detailed checks below.
Note: If no +3 year data is available, +2.5 year data may be used.
Note 2: We use GAAP per Share in all our calculations.
Full details on the Future part of the Simply Wall St company analysis model.
How has Micron Technology performed over the past 5 years?
The past performance of a company can be measured by how much growth it has experienced and how much profit it makes relative to the funds and assets it has available.
Past earnings growth
Below we compare Micron Technology's growth in the last year to its industry (Semiconductors).
Past Earnings growth analysis
We also check if the company has grown in the past 5 years, and whether it has maintained that growth in the year.
- Micron Technology's earnings growth has exceeded the industry average over the past year.
- Micron Technology's 1 year earnings growth exceeds its 5 year annual average (566% vs 22%).
- Micron Technology has delivered strong earnings growth in the past 5 years.
Micron Technology's revenue and profit over the past 5 years is shown below, any years where they have experienced a loss will show up in red.
Performance last year
We want to ensure a company is making the most of what it has available. This is done by comparing the return (profit) to a company's available funds, assets and capital.
- Poor return on shareholders funds (ROE) last year.
- Micron Technology performed worse than the Semiconductors industry average based on return on assets (ROA) last year.
- Performance based on revenue producing assets (ROCE) has been diminishing over 3 years.
Past performance checks
We assess Micron Technology's performance over the past 5 years by checking for:
- Has earnings per share (EPS) increased in past 5 years? (1 check)
- Has the EPS growth in the last year exceeded that of the Semiconductors industry? (1 check)
- Is the current EPS growth higher than the average annual growth over the past 5 years? (1 check)
- Is the Return on Equity (ROE) higher than 20%? (1 check)
- Is the Return on Assets (ROA) above industry average? (1 check)
- Has the Return on Capital Employed (ROCE) increased from 3 years ago? (1 check)
The above checks will fail if the company has reported a loss in the most recent earnings report. Some checks require at least 3 or 5 years worth of data.
Micron Technology has a total score of 3/6, see the detailed checks below.
Note: We use GAAP Earnings per Share in all our calculations.
Full details on the Past part of the Simply Wall St company analysis model.
How is Micron Technology's financial health and their level of debt?
A company's financial position is much like your own financial position, it includes everything you own (assets) and owe (liabilities).
The boxes below represent the relative size of what makes up Micron Technology's finances.
The net worth of a company is the difference between its assets and liabilities.
- Micron Technology is able to meet its short term (1 year) commitments with its holdings of cash and other short term assets.
- Micron Technology's long term commitments exceed its cash and other short term assets.
This treemap shows a more detailed breakdown of Micron Technology's finances.
If any of them are yellow this indicates they may be out of proportion and red means they relate to one of the checks below.
Liabilities and shares
The 'shares' portion represents any funds contributed by the owners (shareholders) and any profits.
- High level of stock/ inventory/ unsold assets.
- Total debt is not covered by total short term assets.
Nearly all companies have debt. Debt in itself isn’t bad, however if the debt is too high, or the company can’t afford to pay the interest on its debts this may have impacts in the future.
The graphic below shows equity (available funds) and debt, we ideally want to see the red area (debt) decreasing.
If there is any debt we look at the companies capability to repay it, and whether the level has increased over the past 5 years.
- The level of debt (69%) compared to net worth is high (greater 40%).
- The level of debt compared to net worth has increased over the past 5 years (38% vs 69% today).
- Total debt is well covered by annual operating cash flow (greater than 20% of total debt).
- Interest on debt is well covered by earnings (6.4x coverage).
Financial health checks
We assess Micron Technology's financial health by checking for:
Full details on the Health part of the Simply Wall St company analysis model.
- Are short term assets greater than short term liabilities? (1 check)
- Are short term assets greater than long term liabilities? (1 check)
- Has the debt to equity ratio increased in the past 5 years? (1 check)
- Is the debt to equity ratio over 40%? (1 check)
- Is the debt covered by short term assets? (1 check)
- Are earnings greater than 5x the interest on debt (if comapany pays interest at all)? (1 check)
Micron Technology has a total score of 3/6, see the detailed checks below.
What is Micron Technology's current dividend yield, its reliability and sustainability?
Dividends are regular cash payments to you from the company, similar to a bank paying you interest on a savings account.
Annual Dividend Income
Current annual income from Micron Technology dividends.
If you bought $2,000 of Micron Technology shares you are expected to receive $0 in your first year as a dividend.
Here we look how much dividend is being paid, if any. Is it above what you can get in a savings account?
It is up there with the best dividend paying companies?
- Paying below low risk savings rate. (2.25%)
- Paying below the markets top dividend payers. (3.18%)
Historical dividend yield
It is important to see if the dividend for a company is stable, and not wildly increasing/decreasing each year. This graph shows you the historical rate to count toward your assessment of the stock.
We also check to see if the dividend has increased in the past 10 years.
- Not paying a notable dividend.
- Not paying a notable dividend.
Current Payout to shareholders
What portion of Micron Technology's earnings are paid to the shareholders as a dividend.
- Not paying a notable dividend.
Future Payout to shareholders
- Insufficient estimate data to determine if a dividend will be paid in 3 years.
Income/ dividend checks
We assess Micron Technology's dividend by checking for:
Full details on the Dividends part of the Simply Wall St company analysis model.
- Firstly is the company paying a notable dividend (greater than 0.5%) - if not then the rest of the checks are ignored.
- Current dividend yield, is there one at all, is it higher than the low risk savings rate, and is it above the top 25% of dividend payers? (2 checks)
- Have they paid a dividend for 10 years, and during this period has the dividend been volatile (drop of more than 25%)? (1 check)
- If they have paid a dividend for 10 years has it increased in this time? (1 check)
- How sustainable is the dividend, can Micron Technology afford to pay it from its earnings today and in 3 years (Payout ratio less than 90%)? (2 checks)
Micron Technology has a total score of 0/6, see the detailed checks below.
What is the CEO of Micron Technology's salary, the management and board of directors tenure and is there insider trading?
Management is one of the most important areas of a company. We look at unreasonable CEO compensation, how long the team and board of directors have been around for and insider trading.
Mr. Ernest E. Maddock, also known as Ernie, has been Chief Financial Officer at Micron Technology, Inc. since June 1, 2015 and has been its Senior Vice President since June 23, 2017. Mr. Ernest E. Maddock served as Vice President of Finance at Micron Technology, Inc. since June 1, 2015 until June 23, 2017. Mr. Maddock is responsible for overseeing Micron's global finance and accounting organization. He served as Chief Financial Officer of Riverbed Technology, Inc. since April 29, 2013, Executive Vice President since April 2013 and also served as its Principal Accounting Officer. He has 35 plus years of experience includes senior leadership roles in finance, operations and general management. Mr. Maddock heads Riverbed’s worldwide operations and information technology organizations. He served as the Chief Accounting Officer of Lam Research Corporation from January 2009 to March 11, 2013 and also served as its Executive Vice President until March 11, 2013. He served as the Chief Financial Officer of Lam Research Corporation from September 2008 to March 11, 2013. He served as a Senior Vice President of Lam Research Corporation since September 2008 and served as Head of Silfex Incorporated. He served as Senior Vice President of Global Operations of Lam Research Corporation from March 2007 to 2008, Group Vice President of Global Operations since October 2003 and as its Vice President of Customer Support Business Group since November 1997. He joined Lam Research in 1997 as Director of Global Sales Finance and served as its General Manager of Global Spares Business since 1998. He oversaw Global Operations which consists of: Information Technology, Global Supply Chain, Production Operations, Corporate Quality, Global Security, Global Real Estate& Facilities. Mr. Maddock served as Managing Director of Global Logistics and Repair Services Operations and Chief Financial Officer of Software Products Division of NCR Corporation. He also held a variety of executive roles in finance and operations in several industries ranging from commercial real estate to telecommunications. He was responsible for an increasingly vital series of finance and operating roles at Lam. He has been a Director of Inotera Memories Inc since September 1, 2015. He has been a Member of Supervisory Board at Novaled GmbH (Novaled AG) since March 28, 2012. He served as an Independent Director of Intersil Corporation from July 2015 to February 24, 2017. Mr. Maddock holds Bachelor's Degree in business management from Georgia Institute of Technology and an MBA in finance from Georgia State University.
- CEO's compensation has increased whilst company is loss making.
- CEO's compensation appears reasonable.
Management Team Tenure
Average tenure of the Micron Technology management team:
- The average tenure for the Micron Technology management team is less than 2 years, this suggests a new team.
Senior VP & CFO
Executive Vice President of Technology Development
Senior Vice President of Worldwide Sales
Senior Vice President of DRAM & Emerging Memory Engineering
Chief Information Officer & VP of Information Systems
Board of Directors Tenure
Average tenure of the Micron Technology board of directors:
- The tenure for the Micron Technology board of directors is about average.
Board of Directors
Recent Insider Trading
- Micron Technology insiders have sold more shares than they have bought in the past 3 months.
Who owns this company?
We assess Micron Technology's management by checking for:
- Is the CEO's compensation unreasonable compared to market cap and profit (greater than 0.5% of the company's profit + 0.03% of market cap)? (1 check)
- Has the CEO's compensation increased more than 20% whilst the EPS is down more then 20%? (1 check)
- Is the average tenure of the management team less than 2 years? (1 check)
- Is the average tenure of the board of directors team less than 3 years? (1 check)
Micron Technology has a total score of 6/6, this is not included on the snowflake, see the detailed checks below.
Note: We use the top 6 management executives and board members in our calculations.
Note 2: Insider trading include any internal stakeholders and these transactions
Full details on the Management part of the Simply Wall St company analysis model.
Micron Technology, Inc. provides semiconductor systems worldwide. The company operates through four segments: Compute and Networking Business Unit, Storage Business Unit, Mobile Business Unit, and Embedded Business Unit. It offers DDR3 and DDR4 DRAM products for computers, servers, networking devices, communications equipment, consumer electronics, automotive, and industrial applications; mobile low-power DRAM products for smartphones, tablets, automotive, laptop computers, and other mobile consumer device applications; DDR2 and DDR DRAM, GDDR5 and GDDR5X DRAM, SDRAM, and RLDRAM products for networking devices, servers, consumer electronics, communications equipment, computer peripherals, automotive and industrial applications, and computer memory upgrades; and hybrid memory cube semiconductor memory devices for use in networking and computing applications. The company also provides NAND Flash products, which are electrically re-writeable, non-volatile semiconductor memory devices; client solid-state drives (SSDs) for notebooks, desktops, workstations, and other consumer applications; enterprise SSDs for server and storage applications; managed multi-chip package products; digital media products, including flash memory cards and JumpDrive products under the Lexar brand name. In addition, it manufactures products that are sold under other brand names; and resells flash memory products that are purchased from other NAND Flash suppliers. Further, the company provides 3D XPoint memory products; and NOR Flash, which are electrically re-writeable and semiconductor memory devices for automotive, industrial, connected home, and consumer applications. It markets its products to original equipment manufacturers and retailers through its internal sales force, independent sales representatives, and distributors; and through a Web-based customer direct sales channel, and channel and distribution partners. The company was founded in 1978 and is headquartered in Boise, Idaho.
|Name:||Micron Technology, Inc.|
|Market Cap:||$39,907 million|
8000 South Federal Way, Boise, 83716, United States
Micron Technology employees.
|Sector:||Semiconductors and Semiconductor Equipment|