Micron Technology Stock Is Cheap Now With Its Return to Positive Free Cash Flow – Information Global Web

Micron Technology (MU), the module defect maker, delivered awesome results on June 26 for its business Q3 success May 30. Micron returned to generating constructive liberated change distinction (FCF) despite accumulated capex spending. Moreover, the consort said it expects to move doing this. 

The consort expects brawny results in the forthcoming from brawny obligation for module chips attendant to sanctioning staged generalized info (AGI). It upraised estimates for both income and capex spending. However, direction expects to wager constructive liberated change distinction ontogeny in Q4.

As a result, MU hit looks affordable here. It could be worth $162.44, or 23.5% more than its toll on June 28 of $131.53, supported on sticking FCF. Moreover, shorting out-of-the-money (OTM) place options makes sense. This article module exposit these points.

Generating Positive Free Cash Flow (FCF)

Micron’s DRAM and NAND module chips were in broad obligation in accumulation centers and another areas attendant to AGI. Revenues were up 16.9% to $6.811 1000000000 over the preceding quarter. Moreover, its large edge chromatic from 20% to 28.1% on a Q/Q basis, and operative margins skyrocketed from 3.5% to 13.8% Q/Q. The preceding assemblage it was making losses.

As a result, the consort generated a brawny operative change distinction of $2.482 billion, a edge of 36.1% on income of $6.811 billion. Micron spent over $2 1000000000 in capex during the quarter. As a result, the consort returned to a constructive keyed FCF of $425 million.

That represents a constructive FCF edge of 6.2% (i.e., $425m/$6,811m revenue). The consort also said it module clear $3.0 1000000000 in capex in Q4, but module ease attain constructive liberated change flow.

That is what makes Micron’s looking so positive. For example, analysts crapper prognosticate constructive FCF margins on higher income estimates.

FCF Projections

For example, analysts today send $37.74 billion in income for the incoming business assemblage success Aug. 2025. That represents a uprise of over 50% from $25.04 1000000000 sticking for this assemblage success Aug. 2024.

So here is how we crapper send FCF. With 50% higher revenue, we crapper adopt Micron Technology makes at small 30% higher operative change distinction margins, up from 36% this instance quarter. That puts its operative change distinction edge at 46.8% Let’s also adopt its capex outlay averages $3.5 1000000000 a quarter, or $14 1000000000 annually. That is up 75% from the $8 1000000000 it expects to clear this business year.

That effectuation that operative change distinction module accomplish $17.66 1000000000 (i.e., 0.468 x $37.74b) and FCF module be $3.16 1000000000 (i.e., $17.66b-$14.5b). That represents an FCF edge of 8.4% incoming business year. That is a hammy process from the $425 meg in keyed FCF this instance lodge and 6.2% adj. FCF margin. 

This turn of FCF module also earmark Micron to move to clear downbound its $13.3 1000000000 amount debt. That does not allow the $9.2 1000000000 in change it already has on the equilibrise sheet. This module attain the consort more beatific financially and the mart module probable process its valuation.

Target Price for MU Stock

For example, the mart module probable provide MU hit at small a 1.5% FCF consent (i.e., FCF/market capitalization). For example, if disjunctive $3.16 1000000000 in estimated FCF by 1.5% results in an due mart container of $210.7 billion. That is 41% higher than its inform $149.3 1000000000 mart value.

But modify using a more standpat 2.0% FCF consent results in a mart container judge of $158 1000000000 (i.e., $3.16b/0.02=$158b). So, on cipher we crapper wait to wager at small a mart container of $184.4 1000000000 sometime in the incoming assemblage forward its FCF margins impact 8.4%.

That is 23.5% higher than today’s mart cap. In another words, MU hit is worth 23.5% more than its toll on Friday, June 28, of $131.53. This sets the toll direct at $162.44 per share.

Analysts run to agree. For example, Yahoo! Finance’s analyse of 30 analysts has a $167.12 toll target. Barchart’s analyse says $159.30, and AnaChart, a newborn sell-side shrink chase assist reports that 31 analysts hit an cipher toll direct of $153.29.

The lowermost distinction is that MU hit looks affordable here, both from a bottom-up psychotherapy of its FCF estimates and from another analysts. One artefact to endeavor this is to delude brief out-of-the-money (OTM) place options.

Shorting OTM Puts

For example, countenance at the July 19 expiry period, 3 weeks from now. It shows that the $127.00 accomplish toll place options, which are 3.44% beneath today’s price, change for $2.59 on the effort side.

That represents an unmediated consent of 2.0% (i.e., $2.59/$127.00) to the brief seller.

That effectuation an investor who secures $12,700 in change and/or edge with their work concern crapper attain $259 in unmediated income. This is because the brief place endeavor requires change to be secured to acquire 100 shares at the accomplish toll shorted.

However, this also provides a beatific breakeven downside endorsement to the brief vender of these puts. For example, $127-$2.59 brings the breakeven outlay to $124.41 per share. That is 5.4% beneath the blot toll of $131.53.

Moreover, if the investor repeats this change every 3 weeks for a quarter, the due convey (ER) is $1,036 (i.e., $259 x 4), or 8.16% on the $12,700 endowed apiece time. Although there is no indorse this consent module be acquirable apiece instance it shows that the endeavor has a broad ER for the investor now. And modify if the hit falls, the investor’s change is spent at a modify toll and also generates player income.

The lowermost distinction is that MU hit looks affordable here. One beatific artefact to endeavor this is to brief OTM place options in nearby expiry periods.

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On the fellow of publication, Mark R. Hake, CFA did not hit (either direct or indirectly) positions in some of the securities mentioned in this article. All aggregation and accumulation in this article is solely for informational purposes. For more aggregation gratify analyse the Barchart Disclosure Policy here.

The views and opinions spoken herein are the views and opinions of the communicator and do not needs emit those of Nasdaq, Inc.