What is MU's Intrinsic value?

Micron Technology Inc (MU) Intrinsic Value Analysis

Executive Summary

As of May 23, 2025, Micron Technology Inc's estimated intrinsic value ranges from $39.68 to $75.81 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $75.81 -20.1%
Discounted Cash Flow (5Y) $39.68 -58.2%
Dividend Discount Model (Multi-Stage) $58.87 -37.9%
Dividend Discount Model (Stable) $66.92 -29.4%

Is Micron Technology Inc (MU) undervalued or overvalued?

With the current market price at $94.83, the stock appears to be significantly overvalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate Micron Technology Inc's intrinsic value, including:

  1. Discounted Cash Flow (DCF): Values the company based on projected future cash flows
  2. Dividend Discount Model (DDM): Values the company based on expected future dividend payments

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 3.9% 4.4%
Equity market risk premium 4.6% 5.6%
Adjusted beta 1.06 1.24
Cost of equity 8.7% 11.8%
Cost of debt 4.0% 4.6%
Tax rate 8.1% 9.3%
Debt/Equity ratio 0.12 0.12
After-tax WACC 8.2% 11.0%

Valuation Methods

1. Discounted Cash Flow (DCF) Valuation

Our DCF model projects cash flows over 5-year and 10-year horizons, with the following key assumptions:

  • Forecast Period: 5-year DCF and 10-year DCF
  • Terminal Growth Rate: 0.0% (range: 3.0% - 5.0%)
  • Discount Rate: 9.6% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $25,111 (FY08-2024) to $54,322 (FY08-2034)
  • Net profit margin expansion from 3% to 23%
  • Capital expenditures maintained at approximately 39% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $40 $51,147M 82.3%
10-Year Growth $76 $91,527M 70.1%
5-Year EBITDA $143 $166,633M 94.6%
10-Year EBITDA $166 $191,912M 85.7%

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 11.1%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 10.3%
  • Long-term growth rate: 4.0%
  • Fair value: $58.87 (-37.9% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 11.8% (Low) to 8.7% (High)
  • Long-term growth rate: 3.0% (Low) to 5.0% (High)
  • Fair value range: $33 to $101
  • Selected fair value: $66.92 (-29.4% from current price)

Key Financial Metrics

Metric Value
Market Capitalization $105979M
Enterprise Value $112782M
Trailing P/E 22.68
Forward P/E 46.96
Trailing EV/EBITDA 12.95
Current Dividend Yield 47.30%
Dividend Growth Rate (5Y) 72.66%
Debt-to-Equity Ratio 0.12

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Discounted Cash Flow (10Y) 33% $22.74
Discounted Cash Flow (5Y) 28% $9.92
Dividend Discount Model (Multi-Stage) 22% $11.77
Dividend Discount Model (Stable) 17% $10.04
Weighted Average 100% $60.53

Investment Conclusion

Based on our comprehensive valuation analysis, Micron Technology Inc's weighted average intrinsic value is $60.53, which is approximately 36.2% below the current market price of $94.83.

Key investment considerations:

  • Strong projected earnings growth (3% to 23% margin)
  • Consistent cash flow generation
  • Conservative capital structure (Debt/Equity of 0.12)
  • Historical dividend growth of 72.66%

Given these factors, we believe Micron Technology Inc is currently significantly overvalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.