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Micron Could Be a Buy Ahead of Earnings

Richard Saintvilus

NEW YORK ( TheStreet) -- It's very rare a company can double in share price in a six-month period and still be a mystery to investors.

This puts shares of memory maker Micron Technology in very exclusive company. In fact, since the stock bottomed at $5.16 on Oct. 24, Micron is up a remarkable 147%. With third-quarter earnings results coming up on Wednesday, investors want to know if they should lock in profits now or stay in.

However, I don't think that's the right question to ask especially since the stock is known for its volatility. Investors still seem unsure of what Micron or its business based on flash memory. Micron's memory business consists of NOR and NAND, non-volatile storage technologies that requires no power to retain data.

Although these two standards share some similarities, they serve different purposes. For instance, in products like MP3 players, which requires higher capacity storage, NAND would be the choice, whereas the speed and efficiency of the NOR platform would be found mobile phones.

While Micron has been credited for having perfected this market, the company has never really been alone. Rivals includnig SanDisk and Applied Materials have proven to be worthwhile competitors. When you throw a dominant power like Samsung into the mix, the space gets crowded pretty quickly.

With weak leverage, Micron began to lose market share to SanDisk and Samsung. Making matters worse was the declining PC, which impacted upon Micron's DRAM or dynamic random access memory, business -- the type often found in personal computers.

Now, despite these many challenges, the fact the stock has been able to post the gains that it has is a testament the company's management team, which has done an excellent job holding the pieces together. This is while the overall industry, which has been commoditized, has posted weak margins due to low average selling prices (ASPs).

With all of that said, there's still quite a bit to prove heading into the company's earnings results. The Street is looking for Micron to report 1 cent in earnings per share on revenue of $2.23 billion. The 1 cent per share may not seem that impressive, but given the fact that Micron reported a loss of 18 cents per share last year, turning a profit would be a pretty significant jump.

The revenue expectations seems a bit light, however. In the March quarter, Micron posted 3% year-over-year increase in revenue, which also jumped 13% sequentially, enough to beat estimates of $1.92 billion. The Street seems a bit more optimistic here as well as estimates have inched up slightly over the past two months.

It will be also interesting to hear what management says about the progress of the memory business and previous diversification plans. With competition gaining ground while ASPs are falling, I've argued that Micron should seek stronger growth opportunities in other end-markets such as servers and mobile.

To the extent that management can do that, I believe there is potential here for the stock to continue to climb. In that regard, new developments regarding the completed acquisition for bankrupt chipmaker Elpida should give investors a clearer sense of how management plans to move the combined companies forward, especially since Elpida was expected to give Micron some leverage with Apple .

Given Apple's rivalry against Samsung, I would expect Apple would do what it can to give Micron any edge to compete more effectively in the memory business. In the meantime, as more mobile devices continue to enter the market, Micron should see some residual benefit.

With improved cash flow and margin expansion, there's still a lot of value in Micron. And if the company can turn profitable faster than expected, $15 per share may not be out of the question at some point in the second half of this year.

At the time of publication the author had a position in AAPL.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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