As I write this, shares of Micron Technology, Inc. (MU) are rallying over 7% after the memory chip giant announced that it plans to buy back $10 billion of its shares. Yes, you read that right: $10 billion. However, given that MU shares have already doubled their value in the past year, is there still time to buy MU? Let’s find out.
For those of you who haven’t heard of it, Micron Technology is one of the largest producers of memory chips in the world. In the beginning, Micron Technology’s single product was a 64-kilobyte memory card that could only contain about half a newspaper’s worth of information. Over the years, the company has expanded the capacity of its memory chips hundreds of thousands of times over and has broadened out into chips that can power a host of products.
MU sells its products to original equipment manufacturers (OEMs) and retailers. Its biggest source of revenues are dynamic random access memory (DRAM) products for data storage and retrieval (including high-speed and high-bandwidth) and specialty DRAM products used in computers, servers, tablets, mobile phones, communication equipment, computer peripherals, industrial, automotive and other electronic devices.
And the DRAM business has been booming for Micron. From the latest smartphones to cryptocurrency mining rigs, memory chips are in hot demand. Global sales of DRAM products surged 76% in 2017, and 2018 is expected to be another banner year.
In the meantime, I’m looking forward to Micron Technology’s third-quarter report, which is due in late June. This quarter, the memory and storage pioneer expects revenue between $7.20 billion and $7.60 billion, or 29% to 36% annual sales growth. Additionally, Micron Technology is looking for adjusted earnings between $2.76 and $2.90 per share, which translates to 70% to 79% annual earnings growth.
And then there’s the fact that Micron is so flush with cash that it’s returning $10 billion back to its shareholders. Stock buybacks are a big deal for several reasons. First, they’re a sign that the company considers its shares a good bargain. Second, having fewer shares on the market reduces share price fluctuations. Third, stock buybacks increase earnings per share—helping a company beat analyst estimates when they announce quarterly results
For these reasons, MU is an A-rated Strong Buy. I currently recommend MU in my Blue Chip Growth letter, and we’re currently sitting on a 115% gain on this position. However, I see plenty of upside potential ahead for MU, so it’s not too late to buy the stock now.