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welcome to my channel I'm Scott and in this video I'm going to walk you through the process of valuing Micron stock so we can determine if it's a buy or a sell Micron Technology is a semiconductor company that makes chips for the computer memory and computer storage industry some of the areas they work in are Dynamic Random Access Memory also known as dram they also make chips for flash memory and USB drives the company is headquartered in Boise Idaho and was founded in 1978.
let's get started with the model this is a large cap company 67 billion marker cap the trading at 61 a share and they have 1.1 billion shares outstanding let's look at their financials the way you value a company is you estimate the free cash flows into the future and then you discount those numbers back back to today's value that's what we're doing in this video and free cash flow is cash flow from operations minus Capital expenditures they didn't really have any free cash flow in 2020 then it jumped way up to over 3 billion in 2022.
there was great demand for Semiconductor companies in 2022 then it did drop off in the trailing 12 months their free cash flow is negative 2 billion so that's definitely not a good sign if you're investing in this company Net Income is the profit or loss on the income statement it's Revenue minus expenses and that blew up to 8.7 billion in 2022 dropping to 1.6 billion in the trailing 12 months the last time the company reported was 228.23 so their fiscal year is a little different than most companies most companies that fiscal year is from January to December I think that fiscal year is September 1st to August 31st revenue is a sales for the company and That Grew From 21 billion to 31 billion but dropped off in the trailing 12 months to 23 billion let's look at the capital structure of 50 billion of equity 7.5 billion of debt they're 87 Equity 13 debt and they could pay off all the debt with the cash on that balance sheet and still have 1.8 billion of cash left over the whack I used was 11.8 percent and that's the discount rate we're going to apply to the Future cash flows we estimated four years of future free cash flows we also estimated the terminal value which is all cash flows past year four that's 40 billion we discounted those numbers back to today's new way to average cost of capital and we get a value of the company of 33 billion dollars we divide that by 1.1 billion shares and we get a calculated stock price of thirty dollars the trading at 61.
so the training at a 101 premium it's a sell according to the model the website simply Wall Street has them at 39 they're also saying they're overvalued 22 analysts price this stock and the average price target of seventy dollars the lowest 45 the high is 100. this is where the stock has been trading since 2002.
so you can see it got really low back in 2010 11 12 13 below ten dollars a share and I remember doing a video on this company in 2020 when I first started my channel and it looked amazing the company and I said they were really undervalued at that point and the stock really shut up it hit about one hundred dollars it has come down quite a bit since the peak but still trading a lot harder than what it was before 2019.
so if you didn't buy the stock between 2003 and 2020 I'm not sure if you could really ever make much of a profit on this company it is possible I'm wrong and a stock does go back up to over 100 but that seems pretty unlikely it looks like they did start paying a dividend in 2021. we'll look at that in a little bit they started out with a 10 cent dividend in 2021 raised it to 12 cents that's a yield of 0.7 seven five percent that's three quarters of one percent which is 31 percent of their net income but we can't look at their dividend or free cash flow since they have negative free cash flow they might be investing a lot in their business that's why they have negative free cash flow remember free cash flows cash flow from operations minus Capital expenditures and cash flow from operations is net income converted to cash there are 62 companies in the same industry as Micron and if Micron has number in red they're worse than the average if they have a number in blue they're better than the average so they are spending a lot of cat-backs nearly 11 billion dollars in a trailing 12 months that's why they have negative free cash flow the idea is the investment in capex will lead to Greater free cash flow in the future they have a really good debt to equity ratio the yield is about average they generate negative free cash flow Intel is the worst at negative 10 billion they rank 9th and market cap of all the companies they don't have much debt so they have a good price to book ratio they have a really good price the sales ratio they have a poor PE and we can't look at that price to free cash flow they do generate lots of revenue for the size of the company but they're getting smaller their five-year annual revenue growth rate is negative two percent and they do have a really small Roa and Roe so to summarize I have them trading at a 101 premium I rank their free cash flows three out of ten their revenue five out of 10 and a ratio of three out of ten so let me know what you think give this video like subscribe or comment below also if you'd like to get a custom valuation or just support the channel you can become a member by clicking on the link in the description below thanks for watching
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