Intrinsic value of Micron Technology - MU

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$27.63

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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$27.63

 
Intrinsic value

$1,440

 
Up/down potential

+999%

 
Rating

str. buy

 
Value-price divergence* premium content

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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of MU stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 30.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -23.43
  58.40
  53.06
  48.25
  43.93
  40.04
  36.53
  33.38
  30.54
  27.99
  25.69
  23.62
  21.76
  20.08
  18.57
  17.22
  15.99
  14.90
  13.91
  13.02
  12.21
  11.49
  10.84
  10.26
  9.73
  9.26
  8.83
  8.45
  8.11
  7.79
  7.52
Revenue, $m
  12,399
  19,640
  30,061
  44,567
  64,144
  89,825
  122,640
  163,575
  213,533
  273,295
  343,499
  424,632
  517,021
  620,848
  736,161
  862,900
  1,000,918
  1,150,006
  1,309,921
  1,480,408
  1,661,218
  1,852,129
  2,052,954
  2,263,560
  2,483,868
  2,713,863
  2,953,594
  3,203,179
  3,462,803
  3,732,717
  4,013,239
Variable operating expenses, $m
 
  5,224
  7,996
  11,855
  17,062
  23,893
  32,622
  43,511
  56,800
  72,696
  91,371
  112,952
  137,528
  165,145
  195,819
  229,531
  266,244
  305,901
  348,439
  393,788
  441,884
  492,666
  546,086
  602,107
  660,709
  721,888
  785,656
  852,046
  921,106
  992,903
  1,067,522
Fixed operating expenses, $m
 
  9,396
  9,631
  9,872
  10,119
  10,372
  10,631
  10,897
  11,169
  11,448
  11,735
  12,028
  12,329
  12,637
  12,953
  13,277
  13,608
  13,949
  14,297
  14,655
  15,021
  15,397
  15,782
  16,176
  16,581
  16,995
  17,420
  17,855
  18,302
  18,759
  19,228
Total operating expenses, $m
  12,235
  14,620
  17,627
  21,727
  27,181
  34,265
  43,253
  54,408
  67,969
  84,144
  103,106
  124,980
  149,857
  177,782
  208,772
  242,808
  279,852
  319,850
  362,736
  408,443
  456,905
  508,063
  561,868
  618,283
  677,290
  738,883
  803,076
  869,901
  939,408
  1,011,662
  1,086,750
Operating income, $m
  164
  5,020
  12,434
  22,840
  36,963
  55,560
  79,387
  109,168
  145,564
  189,150
  240,394
  299,652
  367,165
  443,065
  527,390
  620,092
  721,065
  830,155
  947,185
  1,071,965
  1,204,313
  1,344,066
  1,491,087
  1,645,277
  1,806,579
  1,974,980
  2,150,518
  2,333,278
  2,523,396
  2,721,055
  2,926,489
EBITDA, $m
  3,144
  9,164
  18,777
  32,244
  50,498
  74,513
  105,264
  143,682
  190,620
  246,815
  312,872
  389,249
  476,256
  574,064
  682,720
  802,164
  932,259
  1,072,807
  1,223,578
  1,384,331
  1,554,830
  1,734,865
  1,924,260
  2,122,888
  2,330,675
  2,547,605
  2,773,726
  3,009,149
  3,254,047
  3,508,659
  3,773,282
Interest expense (income), $m
  267
  320
  620
  1,052
  1,654
  2,465
  3,530
  4,891
  6,588
  8,660
  11,138
  14,049
  17,413
  21,244
  25,549
  30,330
  35,586
  41,308
  47,490
  54,121
  61,190
  68,687
  76,603
  84,931
  93,663
  102,798
  112,335
  122,275
  132,624
  143,389
  154,581
Earnings before tax, $m
  -281
  4,699
  11,814
  21,788
  35,309
  53,094
  75,856
  104,277
  138,976
  180,490
  229,256
  285,603
  349,752
  421,822
  501,841
  589,762
  685,480
  788,847
  899,694
  1,017,844
  1,143,123
  1,275,378
  1,414,483
  1,560,347
  1,712,916
  1,872,182
  2,038,183
  2,211,003
  2,390,771
  2,577,666
  2,771,908
Tax expense, $m
  19
  1,269
  3,190
  5,883
  9,534
  14,335
  20,481
  28,155
  37,523
  48,732
  61,899
  77,113
  94,433
  113,892
  135,497
  159,236
  185,079
  212,989
  242,917
  274,818
  308,643
  344,352
  381,911
  421,294
  462,487
  505,489
  550,309
  596,971
  645,508
  695,970
  748,415
Net income, $m
  -276
  3,430
  8,624
  15,905
  25,776
  38,759
  55,375
  76,122
  101,452
  131,758
  167,357
  208,490
  255,319
  307,930
  366,344
  430,526
  500,400
  575,858
  656,777
  743,026
  834,480
  931,026
  1,032,573
  1,139,053
  1,250,428
  1,366,693
  1,487,874
  1,614,032
  1,745,263
  1,881,696
  2,023,493

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  4,398
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  27,540
  36,642
  56,084
  83,147
  119,672
  167,583
  228,805
  305,178
  398,383
  509,878
  640,857
  792,223
  964,591
  1,158,298
  1,373,435
  1,609,889
  1,867,384
  2,145,533
  2,443,882
  2,761,955
  3,099,288
  3,455,464
  3,830,139
  4,223,060
  4,634,083
  5,063,177
  5,510,437
  5,976,081
  6,460,454
  6,964,025
  7,487,386
Adjusted assets (=assets-cash), $m
  23,142
  36,642
  56,084
  83,147
  119,672
  167,583
  228,805
  305,178
  398,383
  509,878
  640,857
  792,223
  964,591
  1,158,298
  1,373,435
  1,609,889
  1,867,384
  2,145,533
  2,443,882
  2,761,955
  3,099,288
  3,455,464
  3,830,139
  4,223,060
  4,634,083
  5,063,177
  5,510,437
  5,976,081
  6,460,454
  6,964,025
  7,487,386
Revenue / Adjusted assets
  0.536
  0.536
  0.536
  0.536
  0.536
  0.536
  0.536
  0.536
  0.536
  0.536
  0.536
  0.536
  0.536
  0.536
  0.536
  0.536
  0.536
  0.536
  0.536
  0.536
  0.536
  0.536
  0.536
  0.536
  0.536
  0.536
  0.536
  0.536
  0.536
  0.536
  0.536
Average production assets, $m
  13,077
  20,720
  31,714
  47,018
  67,672
  94,765
  129,385
  172,572
  225,277
  288,326
  362,392
  447,986
  545,457
  654,994
  776,650
  910,360
  1,055,968
  1,213,256
  1,381,967
  1,561,830
  1,752,585
  1,953,996
  2,165,867
  2,388,056
  2,620,481
  2,863,125
  3,116,042
  3,379,354
  3,653,257
  3,938,017
  4,233,967
Working capital, $m
  4,660
  1,610
  2,465
  3,654
  5,260
  7,366
  10,056
  13,413
  17,510
  22,410
  28,167
  34,820
  42,396
  50,910
  60,365
  70,758
  82,075
  94,300
  107,414
  121,393
  136,220
  151,875
  168,342
  185,612
  203,677
  222,537
  242,195
  262,661
  283,950
  306,083
  329,086
Total debt, $m
  9,910
  17,718
  30,063
  47,248
  70,442
  100,866
  139,741
  188,238
  247,423
  318,223
  401,394
  497,512
  606,965
  729,969
  866,581
  1,016,729
  1,180,239
  1,356,863
  1,546,315
  1,748,291
  1,962,498
  2,188,670
  2,426,588
  2,676,093
  2,937,093
  3,209,567
  3,493,577
  3,789,261
  4,096,838
  4,416,606
  4,748,940
Total liabilities, $m
  15,460
  23,268
  35,613
  52,798
  75,992
  106,416
  145,291
  193,788
  252,973
  323,773
  406,944
  503,062
  612,515
  735,519
  872,131
  1,022,279
  1,185,789
  1,362,413
  1,551,865
  1,753,841
  1,968,048
  2,194,220
  2,432,138
  2,681,643
  2,942,643
  3,215,117
  3,499,127
  3,794,811
  4,102,388
  4,422,156
  4,754,490
Total equity, $m
  12,080
  13,374
  20,471
  30,349
  43,680
  61,168
  83,514
  111,390
  145,410
  186,105
  233,913
  289,162
  352,076
  422,779
  501,304
  587,609
  681,595
  783,119
  892,017
  1,008,114
  1,131,240
  1,261,244
  1,398,001
  1,541,417
  1,691,440
  1,848,060
  2,011,309
  2,181,269
  2,358,066
  2,541,869
  2,732,896
Total liabilities and equity, $m
  27,540
  36,642
  56,084
  83,147
  119,672
  167,584
  228,805
  305,178
  398,383
  509,878
  640,857
  792,224
  964,591
  1,158,298
  1,373,435
  1,609,888
  1,867,384
  2,145,532
  2,443,882
  2,761,955
  3,099,288
  3,455,464
  3,830,139
  4,223,060
  4,634,083
  5,063,177
  5,510,436
  5,976,080
  6,460,454
  6,964,025
  7,487,386
Debt-to-equity ratio
  0.820
  1.320
  1.470
  1.560
  1.610
  1.650
  1.670
  1.690
  1.700
  1.710
  1.720
  1.720
  1.720
  1.730
  1.730
  1.730
  1.730
  1.730
  1.730
  1.730
  1.730
  1.740
  1.740
  1.740
  1.740
  1.740
  1.740
  1.740
  1.740
  1.740
  1.740
Adjusted equity ratio
  0.332
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -276
  3,430
  8,624
  15,905
  25,776
  38,759
  55,375
  76,122
  101,452
  131,758
  167,357
  208,490
  255,319
  307,930
  366,344
  430,526
  500,400
  575,858
  656,777
  743,026
  834,480
  931,026
  1,032,573
  1,139,053
  1,250,428
  1,366,693
  1,487,874
  1,614,032
  1,745,263
  1,881,696
  2,023,493
Depreciation, amort., depletion, $m
  2,980
  4,144
  6,343
  9,404
  13,534
  18,953
  25,877
  34,514
  45,055
  57,665
  72,478
  89,597
  109,091
  130,999
  155,330
  182,072
  211,194
  242,651
  276,393
  312,366
  350,517
  390,799
  433,173
  477,611
  524,096
  572,625
  623,208
  675,871
  730,651
  787,603
  846,793
Funds from operations, $m
  3,533
  7,574
  14,967
  25,309
  39,310
  57,712
  81,252
  110,636
  146,508
  189,423
  239,835
  298,087
  364,410
  438,929
  521,674
  612,598
  711,594
  818,510
  933,170
  1,055,392
  1,184,997
  1,321,825
  1,465,746
  1,616,664
  1,774,525
  1,939,318
  2,111,082
  2,289,903
  2,475,915
  2,669,299
  2,870,286
Change in working capital, $m
  365
  594
  855
  1,189
  1,605
  2,106
  2,691
  3,357
  4,097
  4,900
  5,757
  6,653
  7,576
  8,514
  9,456
  10,393
  11,317
  12,225
  13,113
  13,980
  14,826
  15,655
  16,468
  17,270
  18,065
  18,860
  19,658
  20,466
  21,289
  22,133
  23,003
Cash from operations, $m
  3,168
  9,054
  14,112
  24,119
  37,705
  55,606
  78,561
  107,280
  142,411
  184,522
  234,078
  291,435
  356,834
  430,415
  512,218
  602,206
  700,276
  806,284
  920,057
  1,041,412
  1,170,170
  1,306,171
  1,449,279
  1,599,395
  1,756,459
  1,920,458
  2,091,424
  2,269,437
  2,454,625
  2,647,166
  2,847,283
Maintenance CAPEX, $m
  0
  -2,615
  -4,144
  -6,343
  -9,404
  -13,534
  -18,953
  -25,877
  -34,514
  -45,055
  -57,665
  -72,478
  -89,597
  -109,091
  -130,999
  -155,330
  -182,072
  -211,194
  -242,651
  -276,393
  -312,366
  -350,517
  -390,799
  -433,173
  -477,611
  -524,096
  -572,625
  -623,208
  -675,871
  -730,651
  -787,603
New CAPEX, $m
  -5,817
  -7,644
  -10,994
  -15,303
  -20,654
  -27,093
  -34,620
  -43,187
  -52,705
  -63,048
  -74,066
  -85,595
  -97,471
  -109,537
  -121,656
  -133,710
  -145,608
  -157,288
  -168,711
  -179,864
  -190,755
  -201,410
  -211,871
  -222,189
  -232,425
  -242,644
  -252,916
  -263,312
  -273,903
  -284,760
  -295,950
Cash from investing activities, $m
  -3,068
  -10,259
  -15,138
  -21,646
  -30,058
  -40,627
  -53,573
  -69,064
  -87,219
  -108,103
  -131,731
  -158,073
  -187,068
  -218,628
  -252,655
  -289,040
  -327,680
  -368,482
  -411,362
  -456,257
  -503,121
  -551,927
  -602,670
  -655,362
  -710,036
  -766,740
  -825,541
  -886,520
  -949,774
  -1,015,411
  -1,083,553
Free cash flow, $m
  100
  -1,205
  -1,026
  2,473
  7,647
  14,979
  24,988
  38,215
  55,192
  76,419
  102,347
  133,361
  169,766
  211,786
  259,563
  313,166
  372,596
  437,803
  508,695
  585,155
  667,049
  754,243
  846,608
  944,032
  1,046,423
  1,153,718
  1,265,883
  1,382,916
  1,504,851
  1,631,755
  1,763,730
Issuance/(repayment) of debt, $m
  1,329
  8,564
  12,346
  17,185
  23,193
  30,424
  38,876
  48,497
  59,185
  70,799
  83,172
  96,118
  109,454
  123,004
  136,612
  150,148
  163,509
  176,625
  189,452
  201,976
  214,206
  226,172
  237,919
  249,505
  260,999
  272,475
  284,010
  295,684
  307,577
  319,768
  332,334
Issuance/(repurchase) of shares, $m
  -99
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  1,745
  8,564
  12,346
  17,185
  23,193
  30,424
  38,876
  48,497
  59,185
  70,799
  83,172
  96,118
  109,454
  123,004
  136,612
  150,148
  163,509
  176,625
  189,452
  201,976
  214,206
  226,172
  237,919
  249,505
  260,999
  272,475
  284,010
  295,684
  307,577
  319,768
  332,334
Total cash flow (excl. dividends), $m
  1,853
  7,359
  11,320
  19,658
  30,841
  45,402
  63,864
  86,712
  114,377
  147,218
  185,519
  229,479
  279,220
  334,790
  396,176
  463,314
  536,105
  614,428
  698,147
  787,131
  881,256
  980,415
  1,084,527
  1,193,537
  1,307,422
  1,426,193
  1,549,893
  1,678,600
  1,812,428
  1,951,523
  2,096,064
Retained Cash Flow (-), $m
  222
  -4,936
  -7,096
  -9,878
  -13,332
  -17,488
  -22,346
  -27,876
  -34,020
  -40,696
  -47,807
  -55,249
  -62,914
  -70,703
  -78,525
  -86,306
  -93,986
  -101,524
  -108,898
  -116,097
  -123,126
  -130,004
  -136,756
  -143,416
  -150,023
  -156,619
  -163,250
  -169,960
  -176,796
  -183,804
  -191,027
Prev. year cash balance distribution, $m
 
  3,642
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  6,064
  4,223
  9,780
  17,509
  27,915
  41,518
  58,836
  80,357
  106,522
  137,712
  174,230
  216,306
  264,087
  317,650
  377,008
  442,120
  512,903
  589,250
  671,034
  758,129
  850,411
  947,770
  1,050,121
  1,157,399
  1,269,573
  1,386,643
  1,508,640
  1,635,632
  1,767,720
  1,905,037
Discount rate, %
 
  4.70
  4.94
  5.18
  5.44
  5.71
  6.00
  6.30
  6.61
  6.94
  7.29
  7.66
  8.04
  8.44
  8.86
  9.31
  9.77
  10.26
  10.77
  11.31
  11.88
  12.47
  13.09
  13.75
  14.44
  15.16
  15.92
  16.71
  17.55
  18.42
  19.35
PV of cash for distribution, $m
 
  5,792
  3,836
  8,404
  14,165
  21,144
  29,271
  38,367
  48,143
  58,215
  68,128
  77,395
  85,531
  92,099
  96,750
  99,245
  99,481
  97,491
  93,438
  87,602
  80,344
  72,080
  63,246
  54,259
  45,495
  37,266
  29,802
  23,254
  17,690
  13,110
  9,456
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Micron Technology, Inc. provides semiconductor systems worldwide. The company operates through four segments: Compute and Networking Business Unit, Storage Business Unit, Mobile Business Unit, and Embedded Business Unit. It offers DDR3 and DDR4 DRAM products for computers, servers, networking devices, communications equipment, consumer electronics, automotive, and industrial applications; mobile low-power DRAM products for smartphones, tablets, automotive, laptop computers, and other mobile consumer device applications; DDR2 and DDR DRAM, GDDR5 and GDDR5X DRAM, SDRAM, and RLDRAM products for networking devices, servers, consumer electronics, communications equipment, computer peripherals, automotive and industrial applications, and computer memory upgrades; and hybrid memory cube semiconductor memory devices for use in networking and computing applications. The company also provides NAND Flash products, which are electrically re-writeable, non-volatile semiconductor memory devices; client solid-state drives (SSDs) for notebooks, desktops, workstations, and other consumer applications; enterprise SSDs for server and storage applications; managed multi-chip package products; digital media products, including flash memory cards and JumpDrive products under the Lexar brand name. In addition, it manufactures products that are sold under other brand names; and resells flash memory products that are purchased from other NAND Flash suppliers. Further, the company provides 3D XPoint memory products; and NOR Flash, which are electrically re-writeable and semiconductor memory devices for automotive, industrial, connected home, and consumer applications. It markets its products to original equipment manufacturers and retailers through its internal sales force, independent sales representatives, and distributors; and through a Web-based customer direct sales channel, and channel and distribution partners. The company was founded in 1978 and is headquartered in Boise, Idaho.

FINANCIAL RATIOS  of  Micron Technology (MU)

Valuation Ratios
P/E Ratio -104.1
Price to Sales 2.3
Price to Book 2.4
Price to Tangible Book
Price to Cash Flow 9.1
Price to Free Cash Flow -10.8
Growth Rates
Sales Growth Rate -23.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 44.7%
Cap. Spend. - 3 Yr. Gr. Rate 32.2%
Financial Strength
Quick Ratio 6
Current Ratio 0
LT Debt to Equity 75.8%
Total Debt to Equity 82%
Interest Coverage 0
Management Effectiveness
Return On Assets 0%
Ret/ On Assets - 3 Yr. Avg. 9.6%
Return On Total Capital -1.3%
Ret/ On T. Cap. - 3 Yr. Avg. 11%
Return On Equity -2.3%
Return On Equity - 3 Yr. Avg. 17.8%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 20.2%
Gross Margin - 3 Yr. Avg. 28.5%
EBITDA Margin 23.9%
EBITDA Margin - 3 Yr. Avg. 29.5%
Operating Margin 1.3%
Oper. Margin - 3 Yr. Avg. 12.8%
Pre-Tax Margin -2.3%
Pre-Tax Margin - 3 Yr. Avg. 10.2%
Net Profit Margin -2.2%
Net Profit Margin - 3 Yr. Avg. 11.4%
Effective Tax Rate -6.8%
Eff/ Tax Rate - 3 Yr. Avg. 1.3%
Payout Ratio 0%

MU stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MU stock intrinsic value calculation we used $12399 million for the last fiscal year's total revenue generated by Micron Technology. The default revenue input number comes from 2016 income statement of Micron Technology. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our MU stock valuation model: a) initial revenue growth rate of 58.4% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.7%, whose default value for MU is calculated based on our internal credit rating of Micron Technology, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Micron Technology.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of MU stock the variable cost ratio is equal to 26.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $9167 million in the base year in the intrinsic value calculation for MU stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Micron Technology.

Corporate tax rate of 27% is the nominal tax rate for Micron Technology. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the MU stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for MU are equal to 105.5%.

Life of production assets of 4.4 years is the average useful life of capital assets used in Micron Technology operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for MU is equal to 8.2%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $12080 million for Micron Technology - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 1103.81 million for Micron Technology is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Micron Technology at the current share price and the inputted number of shares is $30.5 billion.


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Stock chart of MU Financial statements of MU
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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