The stock price for Micron Technology (NASDAQ: MU) is up roughly 24% since the end of 2017. In comparison, Texas Instruments (NASDAQ: TXN) has seen its stock grow by 42% during the same period. The difference in the stock price growth only makes sense when we look at the growth in net margins, where Micron’s margins have risen from 25% in 2017 to 27.2% in 2019, and Texas Instruments’ margins have grown from 24.6% to 35% over the same period, nearly 5x more growth than that for Micron. However, a closer look reveals that the growth in margins came purely from a drop in TI’s effective tax rate, which went from 39.4% in 2017 to 12.4% in 2019.
Apart from that, Micron’s revenue grew 15% from 2017 to 2019, while TI’s revenue in fact dropped 4% over the same period. Additionally, the price-to-earnings (P/E) multiple for both companies stands roughly unchanged over this period. TI’s P/E multiple currently stands at 26x, nearly three times that of Micron’s which comes in at around 9x. Does that make sense? We don’t think it does, and we believe Micron is a much better investment at the moment compared to Texas Instrument. Our dashboard, Texas Instruments’ Stock Price Change Of 42% vs. 24% For Micron Technology Since Early 2018 Doesn’t Make Sense, has the underlying numbers.
Micron’s Revenue stands at almost 1.6x that of Texas Instruments
Let’s look at both companies a little more closely. Micron and Texas Instruments are both leading semiconductor companies, manufacturing semiconductor materials used in a variety of applications. Micron is a NAND and DRAM memory manufacturer, selling its memory raw materials to all major flash and HDD manufacturers, such as Western Digital and Seagate. Texas Instruments is primarily an analog and embedded device manufacturer, whose products are used across multiple industries. Micron’s revenue jumped from $20 billion in 2017 to $30 billion in 2018, due to a jump in memory demand driving up selling prices, but dropped back down to around $23 billion in 2019 as a supply glut in the semiconductor market drove down selling prices, hurting gross margins. TI saw modest revenue growth from $15 billion in 2017 to $15.8 billion in 2018, but was also hit by the semiconductor supply glut with revenue dropping to $14.4 billion in 2019.
Further, Micron’s net margins shot up to 47% in 2018, driven primarily by higher gross margins, before falling back down to around 27% in 2019. TI’s net margins in comparison, have jumped from 24.6% in 2017 to 35.4% in 2018, before dropping marginally to 34.9% in 2019 amidst the supply glut. However, this margin growth comes solely from a drop in TI’s effective tax rate, which went from 39.4% in 2017 to 16.5% in 2018 and further to 12.4% in 2019.
But, if we delve deeper and look at operating margin growth, Micron’s operating margins grew from 28.9% in 2017 to 31.5% in 2019, whereas TI saw its operating margins drop from 40.6% in 2017 to 39.8% in 2019.
We believe Micron’s business looks more attractive compared to Texas Instruments, especially at current valuations. Micron trades at a 9x P/E trailing multiple, compared to Texas Instruments’ stock trading at 26x. Both companies’ P/E has stagnated at 2017 levels, but given Micron’s strong revenue and operating margin growth, we believe its business currently looks much more attractive compared to Texas Instruments.
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