Stock prices of Micron technology (IN -1.04%) took off in a big way following the company's fiscal 2024 second-quarter results (for the three months ending February 29), which were released on March 20. The stock rose more than 14% in a single session on the back of excellent revenue and earnings growth. Micron's metrics crushed Wall Street's expectations and its the guide was strong enough to confirm that the company's change of direction has finally arrived.
Over the past year, Micron shares are up 93%. Management's projections for future revenue growth (see below) suggest this stock could have more upside left in the tank. Let's look at the numbers and see why investors should consider buying this chipmaker before its next set of high revenue projections hits its target dates.
Micron has stepped on the accelerator
In this most recent quarter, revenue soared 58% year over year to $5.82 billion. That was well above the consensus estimate of $5.35 billion. Even better, Micron posted an adjusted profit of $0.42 per share from a loss of $1.91 per share in the year-earlier period. Analysts expected a loss of $0.25 per share last quarter.
A favorable balance between supply and demand in the memory chip market meant prices rose last quarter, allowing Micron to significantly increase its margins. Management said dynamic random access memory (DRAM) prices soared by about 10% last quarter, while the price of NAND flash storage chips rose 30%.
All of this explains why the company's adjusted gross margin increased to 20% in the previous quarter compared to a negative 31.4% in the same period a year ago. And an operating margin of 3.5% was a huge improvement compared to negative 56% in the prior-year period.
CEO Sanjay Mehrotra attributed the growing demand for memory for artificial intelligence (AI) servers as a key reason behind its move. He said in the latest earnings conference call:
This improvement in market conditions was due to a confluence of factors, including a strong [artificial intelligence (AI)] server demand, a healthier demand environment in most end markets, and supply reductions across the industry. Demand for AI servers is driving rapid growth at HBM [high-bandwidth memory]DDR5 [D5] and SSDs for data centers, which is restricting the availability of cutting-edge supply for DRAM and NAND.
Mehrotra expects memory prices to rise as the year progresses and forecasts Micron will deliver "record revenue and greatly improved profitability now in fiscal 2025." The company's outlook for the current quarter turned out to be well above what analysts expected.
Micron expects fiscal 2024 third-quarter revenue of $6.6 billion and adjusted earnings of $0.45 per share at the midpoint of its guidance range. Wall Street was looking for just $0.09 per share in earnings on revenue of $6 billion. Year over year, revenue is on track to increase 76%, which would be a nice improvement over the growth the company posted last quarter.
Micron posted a loss of $1.19 per share in the same period last year, meaning the recovery in memory prices is poised to give its results a big boost. This helps explain why analysts are raising their bottom line growth expectations following Micron's latest report.
MU EPS Estimates for the Current Fiscal Year; data for Y Charts.
Buying shares is an obvious decision
Micron shares trade at 6.4 times sales, lower than the U.S. technology sector's price-to-sales ratio of 7.3. According to consensus estimates, Micron could end the current fiscal year with $24.6 billion in revenue. That would be a 58% increase from last year. And it is expected to maintain an impressive growth rate next year as well.
MU revenue estimates for the current fiscal year; data for YGraphics
Assuming Micron reaches $34 billion in revenue in fiscal 2025 and maintains its current level price-sales relationship, its market capitalization could rise to $217 billion. That would be a 67% jump from current levels. So, investors are getting a good deal on Micron stock right now, so it's a good idea to buy it before it soars even higher following its latest earnings report.
Hard Chauhan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
