Micron Has Earned the Street's Attention

NEW YORK (TheStreet) -- After posting 2013 stock gains of more than 240%, memory chip giant Micron (MU), which until then had been somewhat of mystery due to fledgling chip demand, is suddenly on the radar of every investor who doubted that this performance was possible. I was not one of them.

I've been a firm believer in Micron's turnaround potential, particularly due to its strategic shift to higher growth markets like network enterprise, server and mobile. Tuesday, when Micron is due to release first-quarter earnings, management will need to convince the Street that the company can maintain its momentum.

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The Street will be looking for 44 cents in earnings per share on revenue of $3.7 billion, which would represent year-over-year revenue growth of 103%. Revenue growth projection seems a bit astronomical. But that's where investors have to remember the impact of Micron having closed on its deal for bankrupt rival Elipida Memory last July.

Around the same time, Micron announced that it had also completed its acquisition of a 24% stake in Rexchip Electronics.  Given that Elipida had already owned a 65% stake in Rexchip, this means that Micron now owns close to a 90% stake in Rexchip. (In addition to owning the full 100% of Rexchip's product supply.)

In two separate deals, Micron was able to boost is manufacturing capacity by roughly 45%. It's not hard to see why revenue growth is expected to be exceptional. Given the strong holiday quarter on the strength of consumer electronic devices, investors should be asking if Micron's revenue projections are high enough.

Micron's business consists of flash memory storage that requires little-to-no power to retain data, one what was once on verge of collapse from formidable rivals like Applied Materials (AMAT) and SanDisk (SNDK) when this industry's returns began suffering from low average selling prices.

Once Samsung (SSNLF) entered the market and began growing share on the strength on its ascendant smartphones, Micron's margins and pricing power immediately got squeezed.

With nowhere to turn, management saw consolidation and acquisitions as means of survival. One of these bets was on bankrupt Elipida, which, when you think about it, was an easy bet to place, given that Apple (AAPL) was already using roughly 80% of Elipida's memory capacity. With that in mind, investors spent all of 2013 buying into the promise. Now management must deliver the goods.

To the extent that Micron can beat these estimates while also demonstrating improved cash flow and margin expansion, the Street will reward the stock with a higher multiple. This is even though Micron has already outperformed virtually every other name within the group, including Qualcomm (QCOM) and Broadcom (BRCM).

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I have to believe that all of the "easy money" on this stock has already been made. With 240% gains on the table, the Street will be pleased if Micron merely meets expectations and demonstrates improving margins and stronger pricing power.

For now, investors should be encouraged by a management team that seems committed to doing everything in its power to return value to shareholders. Assuming that Micron beats estimates, investors should expect these shares to reach $25 to $28 by the second half of 2014.

At the time of publication, the author was long AAPL.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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