마이크론은 가장 저평가된 주식

2020.06.16

 

Micron: The Most Undervalued Chip Stock

마이크론은 가장 저평가된 주식.

 

Summary

MU's recent performance has put into question its growth and profitability prospects.

The broader picture looks favorable and I expect the business to outperform in the long-run.

MU has one of the most attractive valuations in the sector, which means it could deliver the best returns.

 

MU의 최근 실적은 그것의 성장과 수익성 전망을 의심하게 했다.
더 넓은 그림이 유리해 보이고 나는 사업이 장기적으로 더 잘 될 것으로 기대한다.
MU는 그 분야에서 가장 매력적인 가치들 중 하나를 가지고 있는데,

이것은 그것이 최고의 수익을 낼 수 있다는 것을 의미한다.

 

Thesis Summary

Micron Technology, Inc. (MU) is a chip manufacturer specializing in memory. The company's last 6 months have put into question both the growth and profitability expectations of the company. Having said this, I expect chips to outgrow most other market segments and Micron has a strong balance sheet and an attractive valuation. Micron is, in my opinion, the most undervalued chip stock.

 

 요약
마이크론 테크놀로지(MU)는 메모리 전문 칩 제조업체다. 그 회사의 지난 6개월은 회사의 성장과 수익성에 대한 기대 모두 의문이었다.
이런 말을 하는것은, 나는 다른 대부분의 부문보다 칩 시장이 성장할 것으로 예상하며 마이크론은 대차대조표가 강하고 가치가 매력적이다. 내 생각에 마이크론은 가장 저평가된 반도체 주식이다.

 

Company Overview

Micron Technology is a semiconductor manufacturer founded in 1978. The company operates in four main segments; Compute and Networking Business Unit, Mobile Business Unit, Storage Business Unit, and Embedded Business Unit. MU specializes in memory and its portfolio of products include DRAM, NAND and 3D XPoint which it distributes through its brands, private labels, and strategic partnerships.

The company has suffered the effects from the coronavirus which is painfully reflected in their last 6-month performance:

 

Source: 10-Q

First off, revenue is down significantly in the six months of 2020 as opposed to 2019; down almost 30%. Most worrying of all though is how the company's margins have deteriorated. Gross margin went from 54% to 27% and operating income decreased 84% year on year.

Micron has certainly suffered from a slowdown in demand. But there are also other forces at play here. Having said this, the valuation is attractive and the company has a strong balance sheet. Below we review the firm's strengths, weaknesses, and valuation.

The Good

In the section below, I will discuss some of the strengths and opportunities for MU.

Growth

First, and most obviously, we can expect demand to continue to increase in the semiconductor industry. The explanation is simple; Chips like the ones MU or Advanced Micro Devices (AMD) make are necessary to power all kinds of technology. Smartphones are usually cited as a source of demand for these chips, but this is just the tip of the iceberg. Technologies such as cloud, AI, and 5G also rely on these chips and we can expect strong growth in these fields in the next few years.

The semiconductor industry has already proven itself a growth sector and within it, MU's segment has been outperforming.

 

Source: Investor Presentation

As we can see, DRAM and NAND have been eating up share of the semiconductor TAM and this is where a company like Micron shines, leading me to my next point.

Superior Products

A company like Micron goes unnoticed due to the nature of its business. A company like NVIDIA Corporation (NVDA), which makes high-speed processors for gaming gets a lot more attention. Sure, NVDA has arguably the best GPUs out there, but making videogames run a little bit smoother than anyone else may not be the most profitable business.

On the other hand, MU focuses on data storage. This is a significant need for businesses which, as shown above, are taking up more of the chip market. In this area, MU has some of the best products out there.

 

Source: Investor Presentation

The most power-efficient DRAM and the world's fastest SSD. This might not mean a lot to the average man, but to big enterprises such as Intel Corporation (INTC), who recently agreed for MU to supply 3D XPoint Wafers, it makes a difference.

Balance Sheet

Lastly, we can also applaud MU on the strength of its balance sheet. The company holds over $7 billion in cash and has reduced its debt-burden significantly over the last few years:

 

Source: Morningstar

As we can see from the data provided by Morningstar, the D/E ratio sits at a conservative 0.15. Furthermore, the company's financial leverage has been steadily falling since 2016 and is now only 1.34. MU is financially as strong as it has ever been, something which perhaps some investors are overseeing.

The Bad

In the section below, I will discuss some of the threats and weaknesses of MU.

Litigation and Legislation

One concern I do have comes from the various lawsuits the company is involved in. In the U.S., there are at least two open cases involving Micron and other DRAM suppliers for collusion. In Canada, there are six lawsuits involving Micron and, to top things off, the company is being investigated by the Chinese State Administration for Market Regulation (SAMR). This has been an issue for a while and was already priced in, but the risk remains that the company will incur further litigation costs.

 

Furthermore, a similar thing could happen with costs associated with tariffs. As stated in the latest quarterly report, 89% of revenues come from goods sold and distributed outside the U.S. This means Micron is quite susceptible to changes in legislation, both foreign and domestic.

Price

The most significant threat though might be the one posed by competition and which will materialize in smaller margins. This threat has been discussed by analysts recently and made many investors cautious about the company and sector.

Chip manufacturers rely on certain inputs to make their products, which make them susceptible to changes in the cost of goods sold. The price of silicon is an important factor for example. This means that these companies are not only competing to get the best value and lowest prices to consumers but are also competing with each other for the supply of these raw materials.

 

Source: Macrotrends

Above, we can see the Gross Margin for Micron since 2006. The gross margin has followed an upward trend but has fluctuated heavily in the process. In 2009, the gross margin went negative. Now, investors fear something similar may happen again.

Valuation

As mentioned above, I believe Micron may be one of the most undervalued players in the chip sector. Below we look at some ratios for MU and its peers; Intel, NVIDIA, and AMD.

	MU	INTC	NVDA	AMD
Price/Cash Flow (TTM)	6.05	7.31	44.40	97.75
Price to Book (TTM)	1.46	3.29	16.78	20.63
EBITDA Margin	40.77%	48.47%	32.78%	14.00%
Revenue 3 Year (CAGR)	9.98%	7.78%	16.02%	16.20%
Net Income Margin	11.72%	30.02%	28.18%	6.72%

Data Source: Seeking Alpha

The table above shows some valuation, growth, and profitability ratios. Valuation wise, MU looks like a clear winner. The company trades at only 6 times cash flow and 1.46 P/B value. This is below all its peers, even the less exciting Intel, but there are some reasons for this. Interestingly, while MU has one of the best EBITDA margins, just below Intel, the company is one of the weakest in terms of Net Income. Furthermore, growth has been a challenge. The 3-year CAGR comes in well below its more direct competition; AMD and NVIDIA. Furthermore, the company has had some very bad years, which can be seen in the last year's performance and the 5-year CAGR.

 

위의 표는 가치평가, 성장, 수익성 비율을 보여준다. 가치평가에 현명한 MU는 확실한 승자처럼 보인다.

마이크론은 오직 현금흐름의 6배와 P/B의 1.46배에서 거래되고 있다.

 

이것은 모든 동료들, 심지어 덜 상승한 인텔보다 아래에 있지만, 여기에는 몇 가지 이유가 있다. 흥미롭게도, MU는 인텔 바로 아래인 최고의 EBITDA 마진을 가지고 있는 반면, 이 회사는 순이익 면에서 가장 약한 회사 중 하나이다. 게다가 성장은 도전이었다. 3년간의 CAGR은 AMD와 NVIDIA의 직접적인 경쟁력에 훨씬 못 미친다. 게다가, 그 회사는 작년 실적과 5년간의 CAGR에서 볼 수 있는 아주 나쁜 해를 보냈다.

Takeaway

The bottom line is that Micron is a very attractive investment if you believe they can maintain their profitability and achieve sustained growth. I believe I have made a good argument for this above. Chip manufacturers will continue to benefit from new technologies and at today's valuation MU could be set to deliver the best returns in the sector.

 

결론은 마이크론이 수익성을 유지하고 지속적인 성장을 이룰 수 있다고 믿는다면 매우 매력적인 투자라는 것이다.

나는 위와 같이 이것에 대해 좋은 주장을 했다고 믿는다. 칩 제조업체들은 새로운 기술의 혜택을 계속 받을 것이고, 
오늘날의 가치평가에서 MU는 그 분야에서 최고의 수익을 제공할 수 있을 것이다.