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How Micron Technology Is Poised to Benefit from AI Investments

Posted on by The INO.com Team

Artificial Intelligence (AI) continues revolutionizing industries worldwide, including healthcare, retail, finance, automotive, manufacturing, and logistics, driving demand for advanced technology and infrastructure. Among the companies set to benefit significantly from this AI boom is Micron Technology, Inc. (MU), a prominent manufacturer of memory and storage solutions.

MU’s shares have surged more than 70% over the past six months and nearly 104% over the past year. Moreover, the stock is up approximately 12% over the past month.

This piece delves into the broader market dynamics of AI investments and how MU is strategically positioned to capitalize on these trends, offering insights into how investors might act now.

Broader Market Dynamics of AI Investments

According to Grand View Research, the AI market is expected to exceed $1.81 trillion by 2030, growing at a CAGR of 36.6% from 2024 to 2030. This robust market growth is propelled by the rapid adoption of advanced technologies in numerous industry verticals, increased generation of data, developments in machine learning and deep learning, the introduction of big data, and substantial investments from government and private enterprises.

AI has emerged as a pivotal force in the modern digital era. Tech giants such as Amazon.com, Inc. (AMZN), Alphabet Inc. (GOOGL), Apple Inc. (AAPL), Meta Platforms, Inc. (META), and Microsoft Corporation (MSFT) are heavily investing in research and development (R&D), thereby making AI more accessible for enterprise use cases.

Moreover, several companies have adopted AI technology to enhance customer experience and strengthen their presence in the AI industry 4.0.

Big Tech has spent billions of dollars in the AI revolution. So far, in 2024, Microsoft and Amazon have collectively allocated over $40 billion for investments in AI-related initiatives and data center projects worldwide.

DA Davidson analyst Gil Luria anticipates these companies will spend over $100 billion this year on AI infrastructure. According to Luria, spending will continue to rise in response to growing demand. Meanwhile, Wedbush analyst Daniel Ives projects continued investment in AI infrastructure by leading tech firms, “This is a $1 trillion spending jump ball over the next decade.”

Micron Technology’s Strategic Position

With a $156.54 billion market cap, MU is a crucial player in the AI ecosystem because it focuses on providing cutting-edge memory and storage products globally. The company operates through four segments: Compute and Networking Business Unit; Mobile Business Unit; Embedded Business Unit; and Storage Business Unit.

Micron’s dynamic random-access memory (DRAM) and NAND flash memory are critical components in AI applications, offering the speed and efficiency required for high-performance computing. The company has consistently introduced innovative products, such as the HBM2E with the industry’s fastest, highest capacity high-bandwidth memory (HBM), designed to advance generative AI innovation.

This month, MU announced sampling its next-generation GDDR7 graphics memory with the industry’s highest bit density. With more than 1.5 TB/s of system bandwidth and four independent channels to optimize workloads, Micron GDDR7 memory allows faster response times, smoother gameplay, and reduced processing times. The best-in-class capabilities of Micro GDDR7 will optimize AI, gaming, and high-performance computing workloads.

Notably, Micron recently reached an industry milestone as the first to validate and ship 128GB DDR5 32Gb server DRAM to address the increasing demands for rigorous speed and capacity of memory-intensive Gen AI applications.

Furthermore, MU has forged strategic partnerships with prominent tech companies like NVIDIA Corporation (NVDA) and Intel Corporation (INTC), positioning the company at the forefront of AI technology advancements. In February this year, Micron started mass production of its HBM2E solution for use in Nvidia’s latest AI chip. Micron’s 24GB 8H HBM3E will be part of NVIDIA H200 Tensor Core GPUs, expected to begin shipping in the second quarter.

Also, Micron's 128GB RDIMMs are ready for deployment on the 4th and 5th Gen Intel® Xeon® platforms. In addition to Intel, Micron’s 128GB DDR5 RDIMM memory will be supported by a robust ecosystem, including Advanced Micro Devices, Inc. (AMD), Hewlett Packard Enterprise Company (HPE), and Supermicro, among many others.

Further, in April, MU qualified a full suite of its automotive-grade memory and storage solutions for Qualcomm Technologies Inc.’s Snapdragon Digital Chassis, a comprehensive set of cloud-connected platforms designed to power data-rich, intelligent automotive services. This partnership is aimed at helping the ecosystem build next-generation intelligent vehicles powered by sophisticated AI.

Robust Second-Quarter Financials and Upbeat Outlook

Solid AI demand and constrained supply accelerated Micron’s return to profitability in the second quarter of fiscal 2024, which ended February 29, 2024. MU reported revenue of $5.82 billion, beating analysts’ estimate of $5.35 billion. This revenue is compared to $4.74 billion for the previous quarter and $3.69 billion for the same period in 2023.

The company’s non-GAAP gross margin was $1.16 billion, versus $37 million in the prior quarter and negative $1.16 billion for the previous year’s quarter. Micron’s non-GAAP operating income came in at $204 million, compared to an operating loss of $955 million and $2.08 billion for the prior quarter and the same period last year, respectively.

MU posted non-GAAP net income and earnings per share of $476 million and $0.42 for the second quarter, compared to non-GAAP net loss and loss per share of $2.08 billion and $1.91 a year ago, respectively. The company’s EPS also surpassed the consensus loss per share estimate of $0.24. During the quarter, its operating cash flow was $1.22 billion versus $343 million for the same quarter of 2023.

“Micron delivered fiscal Q2 results with revenue, gross margin and EPS well above the high-end of our guidance range — a testament to our team’s excellent execution on pricing, products and operations,” said Sanjay Mehrotra, MU’s President and CEO. “Our preeminent product portfolio positions us well to deliver a strong fiscal second half of 2024. We believe Micron is one of the biggest beneficiaries in the semiconductor industry of the multi-year opportunity enabled by AI.”

For the third quarter of 2024, the company expects revenue of $6.60 million ± $200 million, and its gross margin is projected to be 26.5% ± 1.5%. Also, Micron expects its non-GAAP earnings per share to be $0.45 ± 0.07.

Bottom Line

MU is strategically positioned to benefit from the burgeoning AI market, driven by its diversified portfolio of advanced memory and storage solutions, strategic partnerships and investments, robust financial health characterized by solid revenue growth and profitability, and expanding market presence.

The company’s recent innovations, including HBM3E and DDR5 RDIMM memory, underscore the commitment to advancing its capabilities across AI and high-performance computing applications.

Moreover, the company’s second-quarter 2024 earnings beat analysts' expectations, supported by the AI boom. Also, Micron offered a rosy guidance for the third quarter of fiscal 2024. Investors eagerly await insights into MU’s financial performance, strategic updates, and outlook during the third-quarter earnings conference call scheduled for June 26, 2024.

Braid Senior Research Analyst Tristan Gerra upgraded MU stock from “Neutral” to “Outperform” and increased the price target from $115 to $150, citing that the company has meaningful upside opportunities. Gerra stated that DRAM chip pricing has been rising while supply is anticipated to slow. Also, Morgan Stanley raised their outlook for Micron from “Underweight” to “Equal-Weight.”

As AI investments from numerous sectors continue to grow, Micron stands to capture significant market share, making it an attractive option for investors seeking long-term growth in the semiconductor sector.

The Bubble Has Burst: Selling Off Pandemic-Era Recreational Stocks

Posted on by The INO.com Team

The COVID-19 pandemic significantly changed consumer behavior, particularly in the recreational vehicles (RVs) industry. In the early days of the pandemic, extra cash that found its way into Americans’ bank accounts due to federal government largess and a desire for social distancing drove a surge in sales of RVs, boats, motorcycles, and snowmobiles, propelling them to multi-year records.

However, this initial bubble during the pandemic for RVs—along with boats, motorcycles, and other outdoor vehicles—has burst, leading to a significant market correction as demand normalizes and financial conditions tighten. As the cost of living increased, remote working became more challenging, and interest rates surged, financing for these big-ticket items grew prohibitively expensive.

According to the RV Industry Association, RV shipments witnessed a nearly 40% increase from 2020 to 2021. The RV industry shipped a record of about 600,240 units to dealers in 2021, up 19% from the record set in 2017. RV shipments nosedived post the pandemic surge. The RV industry ended 2023 with 313,174 shipments, down 36.5% compared to 2022.

“The pandemic did spark a lot more of buying action from the consumer but now it’s coming back to more of the 2018, 2019 numbers, rather than the crazy numbers in 2020 through 2022,” said co-owner and general manager of Midway, Chris Grant.

As the pandemic bubble has burst, investors could consider selling off recreational stocks such as Thor Industries, Inc. (THO), Winnebago Industries, Inc. (WGO), and Polaris Inc. (PII). Let’s delve deeper into the stocks’ fundamentals and near-term outlook.

Thor Industries, Inc. (THO)

Thor Industries, Inc. (THO), a leading manufacturer of RVs, experienced a tremendous surge in demand during the pandemic but now faces a market correction. The stock has struggled to maintain its pandemic-era gains, with consumers pulling back on discretionary spending and higher financing costs dampening enthusiasm for RV purchases.

Shares of THO have plunged more than 8% over the past month and approximately 10% over the past six months.

THO’s trailing-12-month gross profit margin of 14.10% is 61.7% lower than the 36.80% industry average. Likewise, the stock’s trailing-12-month EBIT margin and net income margin of 4.28% and 2.59% unfavorably compare to the industry averages of 7.59% and 4.70%, respectively.

“In our fiscal third quarter, our independent dealers experienced increased retail activity during the Spring selling season; however, conversion to sales remained difficult in light of the economic pressures on retail buyers. Faced with elevated floor plan interest rates, our independent dealers remain understandably cautious with their ordering patterns; consequently, our independent dealer inventory levels remain suppressed,” said Bob Martin, President and CEO of THOR Industries.

“Given the macroeconomic conditions, we see this cautious approach as healthy for our industry and maintain our confidence in a robust return of our top and bottom line performance once macro pressures subside,” Martin added.

For the quarter that ended April 30, 2024, THO’s net sales decreased 4.4% year-over-year to $2.80 billion. North American Toward RV net sales were down 4.7%. Its gross profit came in at $421.85 million, down 2.5% from the year-ago value. Its net income and earnings per common share were $113.58 million and $2.13, declines of 5.1% and 4.9% year-over-year, respectively.

As of April 30, 2024, the company’s cash and equivalents stood at $371.82 million, compared to $441.23 million as of July 31, 2023. THO’s current liabilities increased to $1.74 billion at the end of the third quarter.

Given the challenging market conditions, the company lowered its full-year 2024 guidance. The prolonged market downturn, which persisted longer than anticipated, continues to impact THO’s independent dealers and consumers, which the company believes will constrain its top and bottom lines for the fourth quarter.

Based on current North American order intake levels through the end of May, the company revised its guidance ranges to reflect a more conservative fiscal year 2024 North American industry wholesale shipment range of 315,000 to 325,000 units, down from the prior range of 330,000 to 340,000 units.

For the full year, THOR Industries expects consolidated net sales in the range of $9.8 billion to $10.1 billion, compared to the previous guidance of $10.0 billion to $10.5 billion. Its gross profit margin is expected to be 13.75%-14%, down from previously guided 14%-14.5%. Also, the company’s earnings per share are anticipated to range from $4.50 to $4.75 (previously $5-$5.50).

Analysts also appear highly bearish about the company’s prospects. Street expects THO’s revenue and EPS for the fiscal year (ending July 2024) to decrease 10% and 32.4% year-over-year to $10.01 billion and $4.70, respectively.

Winnebago Industries, Inc. (WGO)

c, another prominent player in the RV market, has faced headwinds as demand wanes. The company enjoyed a boom during the height of the pandemic, but the current economic uncertainty and rising interest rates have led to decreased sales and stock performance.

WGO’s stock has slumped nearly 15% over the past six months and more than 19% year-to-date.

After all, WGO’s trailing-12-month gross profit margin and EBITDA margin of 15.93% and 8.59% are lower than the respective industry averages of 36.80% and 11.18%. Similarly, the stock’s trailing-12-month net income margin of 3.70% is 21.4% lower than the industry average of 4.70%.

In the second quarter that ended February 24, 2024, WGO’s net revenues declined 18.8% year-over-year to $703.60 million, driven by lower unit sales related to market conditions and unfavorable product mix. Its gross profit decreased 28.3% year-over-year to $105.30 million. Its operating income was $35.40 million, down 53.9% from the previous year’s quarter.

Furthermore, the company reported a net loss of $12.70 million, or $0.43 per common share, compared to a net income of $52.80 million, or $1.52 per common share, respectively. Its adjusted EBITDA decreased 83.7% from the year-ago value to $13.90 million.

During the quarter, wholesale shipments were constrained as dealers closely managed inventory levels amid a high interest rate environment and seasonal demand trends. As of February 24, 2024, the backlog from the Motorhome RV segment was $452.20 million (2,582 units), down 48.2% from the prior year.

As of February 24, 2024, the company’s total outstanding debt was $694.80 million. Winnebago Industries completed a $350 million offering of convertible senior notes for refinancing 2025 maturities in the second quarter. Its cash and cash equivalents were reduced to $265.70 million, compared to $309.90 as of August 26, 2023.

Analysts expect WGO’s revenue for the third quarter (ended May 2024) to decrease 10.6% year-over-year to $805.49 million. The consensus EPS estimate of $1.34 for the same quarter reflects a 36.9% year-over-year decline. Additionally, the company missed consensus revenue estimates in three of the trailing four quarters, which is disappointing.

For the fiscal year ending August 2024, the company’s revenue and EPS are expected to decline 10.1% and 35.2% year-over-year to $3.14 billion and $4.97, respectively.

Polaris Inc. (PII)

Polaris Inc. (PII), known for its motorcycles, snowmobiles, and other recreational vehicles, has also felt the pinch. PII’s stock soared as consumers sought outdoor activities during lockdowns. However, the subsequent economic shifts have cooled demand, leading to a decline in stock value. Shares of PII have declined more than 18% year-to-date and around 35% over the past year.

PII’s trailing-12-month gross profit margin of 22.23% is 39.6% lower than the 36.80% industry average. Likewise, the stock’s trailing-12-month EBITDA margin and levered FCF margin of 9.78% and 3.72% are lower than the industry averages of 11.18% and 5.46%, respectively.

PII’s sales decreased 20% year-over-year to $1.74 billion for the first quarter ended April 23, 2024. The company’s sales were negatively impacted by lower volume and net pricing driven by higher promotional activity partially offset by a favorable product mix. North America sales were down 22% year-over-year. Its adjusted gross profit margin declined 29.5% from the year-ago value to $330.70 million.

In addition, adjusted net income and adjusted EPS attributable to PII were $13 million and $0.23, down 89.1% and 88.8% year-over-year, respectively. Its adjusted EBITDA declined 53.8% from the prior year’s period to $110 million. Also, the company’s free cash flow came in at a negative $162.10 million, compared to $35.10 million in the previous year’s quarter.

According to the 2024 business outlook, Polaris expects full-year sales to be down 5 to 7% compared to fiscal 2023. The company anticipates adjusted EPS attributed to Polaris Inc. common shareholders down 10 to 15% versus 2023.

Street expects PII’s revenue and EPS for the second quarter (ending June 2024) to decrease 2.3% and 6.3% year-over-year to $2.17 billion and $2.27, respectively. Further, the company’s revenue and EPS for the fiscal year 2024 are expected to decline 6.2% and 13.7% from the prior year to $8.38 billion and $7.90, respectively.

Bottom Line

Companies primarily operating in the RV industry face ongoing macroeconomic challenges. While the RV and boat market experienced an unprecedented boom during the COVID-19 pandemic, the subsequent decline in consumer demand and economic factors like higher interest rates and inflation have created a challenging environment for these stocks.

Despite this downturn, some companies, including Brunswick Corporation (BC), managed to navigate these choppy waters. However, other companies, including Thor Industries, Winnebago, and Polaris, have not fared as well. Investors should carefully assess their positions in these companies and consider the potential benefits of reallocating their portfolios in response to the changing market dynamics.

Thus, it seems prudent to consider selling struggling recreational stocks THO, WGO, and PII, which have lost their massive pandemic-era gains.

Pipeline Powerhouses: Oneok (OKE) vs. Williams Companies (WMB) as Dividend Plays

Posted on by The INO.com Team

Energy demand continues to rise worldwide, driven by the growing population, rapid urbanization, and economic development. Increased energy consumption across residential, commercial, and industrial activities necessitates the expansion and modernization of energy infrastructure to ensure a consistent supply of energy.

The energy infrastructure sector operates assets that offer services crucial for expanding the global economy and ensuring energy security. The industry is supported by stable cash flows, high barriers to entry, long-lived real assets, and inelastic demand, which collectively contributed to double-digit returns in 2023.

Energy infrastructure companies are well-poised to provide essential services for decades to come. In 2024, the sector’s total return is projected to be between 10% and 14%, driven by a dividend yield between 6%-7%, expected dividend growth of 3%-5%, and stock buybacks of 1%-2%.

Notably, as represented by the Alerian Midstream Energy Index, the energy infrastructure sector delivered an impressive 25% annualized return compared to the S&P 500’s 10% from December 31, 2020, to December 31, 2023.

Moreover, the growth in the U.S. natural gas and oil production volumes is expected to set new records, reinforcing the U.S. position as the world’s largest energy exporter.

According to the Energy Information Administration’s (EIA) Short-Term Energy Outlook (STEO), the U.S. natural gas trade will continue to expand with the startup of new LNG export projects. Also, EIA expects increased natural gas exports by pipeline, primarily to Mexico.

In its STEO forecast, net exports of U.S. natural gas will rise 6% year-over-year to 13.6 billion cubic feet per day (Bcf/d) in 2024. In 2025, net exports are expected to grow another 20% to 16.4 Bcf/d. U.S. LNG exports are projected to grow by 2% in 2024 to an average of 12.2 Bcf/d and an additional 18% (2.1 Bcf/d).

As per a Research and Markets report, the oil and gas midstream market is expected to reach $43.41 billion by 2030, growing at a CAGR of 5.9% during the forecast period (2024-2030).

As the energy infrastructure sector has been a hotspot for dividend-seeking investors, ONEOK, Inc. (OKE) and The Williams Companies, Inc. (WMB) stand out as prominent players offering attractive yields and stable returns.

On April 18, OKE’s Board of Directors declared a quarterly dividend of 99 cents ($0.99) per share, paid on May 15 to shareholders of record at the close of business on May 1. Its annual dividend of $3.96 translates to a yield of 4.79% at the prevailing share price. Its four-year average dividend yield is 7.08%.

Further, the company’s dividend payments have increased at a CAGR of 2.7% over the past five years.

Meanwhile, on January 30, WMB’s Board of Directors approved a dividend of $0.475 per share, paid on March 25, to shareholders of record at the close of business on March 8. This represents a 6.1% increase from the company’s fourth-quarter 2023 dividend, paid in December 2023. Its annual dividend of $1.90 translates to a yield of 4.6% at the current share price.

Moreover, the company’s dividend payouts have grown at a CAGR of 5.4% over the past five years. Its four-year average dividend yield is 5.95%. Additionally, WMB has raised its dividend for six consecutive years.

Let’s examine OKE and WMB’s recent financial performance, strategic initiatives, valuation, and growth outlook more thoroughly to determine whether these stocks are worth buying or holding.

ONEOK, Inc. (OKE)

With a $48.23 billion market cap, ONEOK, Inc. (OKE) engages in the gathering, processing, fractionation, storage, transportation, and marketing of natural gas and natural gas liquids (NGL). It operates through four segments: Natural Gas Gathering and Processing; Natural Gas Liquids; Natural Gas Pipelines; and Refined Products and Crude. 

On May 13, OKE announced an agreement to acquire a system of natural gas liquids (NGL) pipelines from Easton Energy, a Houston-based midstream company, for around $280 million. The transaction encompasses nearly 450 miles of NGL pipelines in the strategic Gulf Coast market centers for NGLs, refined products, and crude oil.

These pipelines transport various liquid products through a portion of OKE’s capacity to current customers. The company intends to connect the pipelines to its NGL infrastructure in Mont Belvieu, Texas, and its refined products and crude oil infrastructure in Houston, thereby accelerating commercial synergies.

“We expect that this acquisition will accelerate the ability to capture commercial synergies related to our recent Magellan acquisition and future earnings growth,” said Pierce H. Norton II, OKE’s President and CEO.

Also, in March, ONEOK increased its stake in the Saddlehorn Pipeline Company by acquiring an additional 10% interest, bringing its total ownership to 40% as of March 31, 2024.

OKE’s trailing-12-month EBIT margin and net income margin of 21.17% and 12.54% are 11% and 9.7% higher than the industry averages of 19.07% and 11.43%, respectively. However, the stock’s trailing-12-month gross profit margin of 36% is 19.4% lower than the 44.68% industry average.

In terms of forward non-GAAP P/E, OKE is trading at 16.62x, 45.8% higher than the industry average of 11.40x. Its forward EV/EBITDA of 11.34x is 95.6% higher than the industry average of 5.80x. Also, its forward Price/Sales of 1.07x is 38.7% higher than the industry average of 1.49x.

For the first quarter that ended March 31, 2024, OKE reported a 12% year-over-year rise in Rocky Mountain region NGL raw feed throughput volumes. It posted a 4% increase in natural gas volumes processed and a 9% growth in Rocky Mountain region natural gas volumes processed.

ONEOK’s adjusted EBITDA from the natural gas gathering and processing segment and the natural gas pipelines segments were $306 million and $165 million, up 7.4% and 4.4% year-over-year, respectively.

However, the company’s total revenues declined 5.8% from the prior year’s quarter to $4.78 billion. Its operating income was $1.06 billion, a decline of 29.9% year-over-year. Also, net income available to common shareholders and EPS came in at $639 million and $1.09, down 39.1% and 53.4% from the previous year’s period, respectively.

“The strength of our business, underscored by accelerating volumes and a positive synergy outlook, resulted in an increase to our 2024 financial guidance and provides significant momentum into 2025,” said Pierce H. Norton II.

ONEOK increased 2024 net income guidance by $70 million to a midpoint of $2.88 billion. The company raised its EPS to a midpoint of $4.92. Also, its adjusted EBITDA guidance increased by $75 million to a midpoint of $6.175 billion.

Furthermore, its 2024 capital expenditure guidance remains unchanged at $1.75 billion to $1.95 billion. The company also expects that additional annual synergies will meet or surpass $125 million in 2025.

Looking ahead, analysts expect OKE’s revenue for the fiscal year (ending December 2024) to increase by 32% year-over-year to $23.34 billion. However, the consensus EPS estimate of $4.97 for the current year indicates a decline of 9.3% year-over-year. Moreover, ONEOK has missed consensus revenue estimates in all four trailing quarters and consensus EPS estimates in three of the trailing four quarters.

For the fiscal year 2025, the company’s revenue and EPS are estimated to grow 6.4% and 10.4% year-over-year to $24.83 billion and $5.49, respectively.

Shares of OKE have surged nearly 23% over the past six months and more than 44% over the past year.

The Williams Companies, Inc. (WMB)

With a market cap of $50.30 billion, The Williams Companies, Inc. (WMB) operates as an energy infrastructure company. Its four business divisions include Transmission & Gulf of Mexico; Northeast G&P; West; and Gas & NGL Marketing Services. 

During the quarter of 2024, WMB placed Transco’s Carolina market link into service. This development contributed to additional fee-based revenues.

 The midstream company finished 2023 with a deal to acquire a portfolio of natural gas storage assets from an affiliate of Hartree Partners LP for $1.95 billion.

The transaction includes six underground natural gas storage facilities in Louisiana and Mississippi with a total capacity of 115 Bcf, 230 miles of gas transmission pipeline and 30 pipeline interconnects to LNG markets, and connections to Transco, the nation’s largest natural gas transmission pipeline.

These Gulf Coast natural gas storage assets are strategically located to take advantage of solid LNG and power demand fundamentals, boosting the company’s earnings growth.

WMB’s trailing-12-month gross profit margin of 60.70% is 35.9% higher than the 44.68% industry average. Its trailing-12-month EBITDA margin of 28.40% is 148.4% higher than the 11.43% industry average. However, the stock’s trailing-12-month ROTC and ROTA of 6% and 5.47% are lower than the industry averages of 7.75% and 5.74%, respectively.

In terms of forward non-GAAP P/E, WMB is trading at 22.65x, 98.6% higher than the industry average of 11.40x. Also, its forward EV/EBITDA and Price/Sales of 11.27x and 4.86x are unfavorably compared to respective industry averages of 5.80x and 1.49x.

In the first quarter that ended March 31, 2024, WMB’s service revenues increased 12.5% year-over-year to $1.91 billion, but its total revenues came in at $2.77 billion, down 10.1% from the year-ago value. Its adjusted EBITDA grew 7.7% year-over-year to $1.93 billion.

The adjusted EBITDA growth was driven by the continued outperformance of its transmission, storage, and gathering businesses, which delivered 13% higher adjusted EBITDA compared to the same period in 2023. Also, contracted transmission capacity achieved another record of 33.9 Bcf/d in the first quarter, up 4.3% year-over-year.

In addition, the company’s adjusted net income and earnings per share were $719 million and $0.59, up 5.1% and 5.4% from the prior year’s period, respectively. Its available funds from operations increased 4.3% year-over-year to $1.51 billion.

“Crisp execution by our teams in both integrating newly acquired assets and building large-scale organic projects has us on track to be in the top half of our original 2024 guidance range,” commented Alan Armstrong, president and CEO of WMB.

He added, “Our track record of generating predictable, growing earnings in all market cycles underscores the value of Williams as a resilient, long-term investment with a strong dividend.”

Williams projects adjusted EBITDA at the top half of its 2024 guidance range of $6.8 billion and $7.1 billion. It continues to expect 2024 growth capex of $1.45-$1.75 billion and maintenance capex of $1.1-$1.3 billion, which includes capital of $350 million for emissions reduction and modernization initiatives.

For 2025, WMB expects adjusted EBITDA between $7.2 billion and $7.6 billion, with growth capex between $1.65 billion and $1.95 billion and maintenance capex between $750 million and $850 million, which includes capital of $100 million based on a midpoint for emissions reduction and modernization initiatives. Also, it continues to anticipate a leverage ratio midpoint for 2024 of 3.85x.

Street expects WMB’s revenue and EPS for the fiscal year (ending December 2024) to decrease 5.2% and 4.58% year-over-year to $10.34 billion and $1.82, respectively. For the fiscal year 2025, the company’s revenue and EPS are expected to increase 11.4% and 12.3% from the prior year to $11.52 billion and $2.05, respectively.

WMB’s stock has gained more than 15% over the past six months and approximately 42% over the past year.

Bottom Line

The energy infrastructure sector is well-poised for robust growth and expansion, driven by rising global energy demand amid a growing population, urbanization, and economic development. The industry’s stable cash flows, high barriers to entry, and inelastic demand contributed to impressive double-digit returns in 2023.

Further, the sector is projected to deliver a total return of 10% to 14% in 2024, supported by attractive dividend yields, dividend growth, and stock buybacks. OKE and WMB are critical players within the sector, each with strategic initiatives and strong dividend profiles.

ONEOK’s raised financial 2024 guidance reflects favorable industry fundamentals across its system and continued confidence in synergy expectations. However, the company’s recent first-quarter 2024 results indicate mixed performance, with revenue year-over-year declines and pressure on profit margins.

Despite these challenges, OKE’s dividend yield remains attractive, and its long-term growth outlook is supported by surging energy demand and infrastructure expansion.

Similarly, Williams has demonstrated solid financial health with strategic investments and integration of newly acquired natural gas storage assets. While the company reported year-over-year growth in service revenues and adjusted EBITDA in the first quarter, overall revenues have declined.

WMB’s strong dividend track record and future growth projections underscore its potential as a resilient, long-term investment. The company leverages its existing infrastructure and project development capabilities to serve growing domestic and global security needs while creating sustainable value for its shareholders.

Given the mixed fundamentals, it seems prudent for investors to hold OKE and WMB stocks and wait for better entry points. Both companies offer attractive dividends and long-term growth prospects, but market conditions and stock valuations should be carefully considered to maximize investment returns.

3M's Dividend Cut Signals Shift in Investor Strategy: What Does It Mean for Shareholders?

Posted on by The INO.com Team

With a $56.02 billion market cap, 3M Company (MMM) offers diversified technology services, focusing on consumer goods, safety and industrial, healthcare, and transportation sectors. On May 14, MMM declared a dividend on the company’s common stock of $0.70 per share for the second quarter of 2024, payable on June 12. 

The company has paid dividends to its shareholders without interruption for more than 100 years. However, the newly declared dividend is down from the previous quarter’s dividend of $1.51, and this dividend cut will end a 64-year streak of increases.

Let's delve into the implications of 3M’s significant dividend reduction for investors, examining the reasons behind this decision and its effects on shareholder value.

3M Spun-Off Its Healthcare Business

In April, MMM successfully completed the planned spin-off of its healthcare division, which formally launched Solventum Corporation as an independent company. Solventum is now publicly traded on the New York Stock Exchange under the ticker symbol SOLV.

“This is an important day for 3M and Solventum, and I extend my sincere congratulations to members of both teams who have made this possible,” said Mike Roman, 3M chairman and CEO. “Both companies are positioned to pursue their respective growth and tailored capital allocation plans, and I am excited to see both companies succeed as they innovate new solutions and create value for their respective stakeholders.”

Given the spin-off of its healthcare business, 3M’s recent dividend cut was not surprising. The launch of Solventum as an independent entity impacted MMM’s financial landscape, as the healthcare segment accounted for nearly 30% of the company’s free cash flow.

Now, the consumer and industrial products company is aiming for a dividend payout ratio of approximately 40% of adjusted free cash flow compared to about 60% before the Solventum spin-off.

MMM’s annual dividend of $2.80 translates to a yield of 5.05% at the prevailing share price. Its four-year average dividend yield is 3.75%.

Lost Dividend Aristocrat Status

The recent dividend reduction will cause 3M to lose its status as a Dividend Aristocrat, a company that has increased its dividend payouts for at least 25 consecutive years. Once 3M is removed, the S&P 500 Dividend Aristocrat Index will consist of 66 components.

S&P Global reviews the index qualification once per year in January, suggesting that 3M stock might remain in the index until early 2025.

The removal from the index is not expected to impact the stock significantly. Former 3M CEO Mike Roman had already informed investors about resetting the company’s dividend post the April 1 spinoff.

3M’s stock soared toward a 16-month high on Wednesday after the company cut its quarterly dividend but by less than what was anticipated.

J.P. Morgan analyst Stephen Tusa expressed “relief” that the dividend wasn’t slashed even more. With 553.36 million shares outstanding as of March 31, the new annual dividend rate of $2.80 per share translates to a total annual payout of approximately $1.55 billion. Tusa noted that this payout is higher than the expected $1.4 billion.

While the dividend cut may initially impact investor sentiment and income, the broader market’s reaction suggests that it has anticipated and priced this adjustment due to 3M’s spin-off of its massive healthcare business, Solventum.

Investors should monitor the company’s financial reports, strategic moves, and efforts to address underlying challenges, which could ultimately shape the trajectory of shareholder value in the upcoming quarters.

First-Quarter Results and Updated Full-Year 2024 Guidance Reflecting Completion of Solventum Spin

For the first quarter that ended March 31, 2024, MMM’s revenue of $8 billion surpassed analysts’ estimate of $7.66 billion. Its organic sales grew 0.8% year-over-year, marking the first positive growth in the past five quarters. Its adjusted operating income margin was 21.9%, up four percentage points year-over-year.

The company posted adjusted earnings per share of $2.39, compared to the consensus estimate of $2.11, and up 21% year-over-year. During the quarter, 3M’s adjusted free cash flow was $0.8 billion. Moreover, the company returned $835 million to shareholders via dividends.

Furthermore, as of March 31, 2024, the materials company’s cash and cash equivalents stood at $10.91 billion, compared to $5.93 billion as of December 31, 2023. The company’s total current assets were $21.61 billion versus $16.38 billion as of December 31, 2023.

Starting in the second quarter of 2024, Solventum’s historical earnings results will be reported within 3M’s financial statements as discontinued operations.

According to the full-year 2024 outlook, the company projects adjusted organic sales growth to be flat-2%. Also, its adjusted earnings per share is expected to be between $6.80 to $7.30.

Strategic Initiatives and Legal Settlements

On May 3, 3M announced a 90,000-square-foot expansion at its facility in Valley, Nebraska, boosting the plant’s manufacturing capacity and adding around 40 new jobs. The $67 million investment includes new production lines, equipment, and a warehouse, enabling 3M to meet customer demand for its personal safety products more efficiently.

In addition, MMM is making changes in its leadership structure. On March 12, the company announced the appointment of William M. “Bill” Brown as chief executive officer, effective May 1, 2024. He succeeded Michael Roman, who was appointed to the role of Executive Chairman of the 3M Board of Directors, also effective May 1.

“Bill's strong track record as a CEO for a global technology company makes him the right leader for 3M,” said Michael Roman. “He brings a wealth of experience in strategic leadership, innovation, and operational excellence to 3M. I look forward to working with him to build on our momentum in my new role as executive chairman.”

Further, 3M has faced substantial lawsuits, but they are beginning to resolve these issues. On April 1, 3M’s previously announced settlement with U.S.-based public water suppliers (PWS) to address PFAS in drinking water received final court approval.

This marks another significant development for 3M as it remains committed to its objectives. The final approval of this settlement and the company’s ongoing progress to cease all PFAS manufacturing by the end of 2025 will further its efforts to minimize risk and uncertainty in the future.

The company also settled the Combat Arms Earplug litigation. More than 99% of claimants have signed on at the last registration date, marking a significant stride in resolving this long-running dispute.

Bottom Line

MMM delivered better-than-expected first-quarter 2024 results as it returned to organic sales growth and achieved doubt-digit growth in adjusted earnings. The company enhanced performance in its businesses through effective operation management, successfully executed the Solventum spin-off, and finalized two major legal settlements.

The significant progress 3M has made in executing its strategic priorities set the stage for long-term value creation for shareholders, particularly as Bill Brown assumes the role of the CEO.

The recent dividend cut by 3M, following the spin-off of its healthcare division Solventum, was largely anticipated by investors and analysts as part of its broader strategic realignment. While the cut ended a streak of 64 straight years of increases, it was less than feared; 3 M’s stock is trading higher.

Moreover, the stock has surged nearly 3% over the past five days and more than 8% over the past month.

Analysts at J.P. Morgan upgraded 3M to Overweight from Neutral and raised its price target on the stock from $110 to $111.

The upgrade reflects “a combination of an attractive valuation, an increasingly cleaned up balance sheet, with the dividend cut catalyst behind them now, and a turn in earnings momentum on a bottom in electronics, with better visibility on remainco fundamentals,” Stephen Tusa said in a note to clients.

Moving forward, investors should closely monitor 3M's financial performance, execution of strategic plans, and ability to capitalize on growth opportunities. The company’s trajectory in addressing underlying challenges and creating long-term shareholder value will be the key factors influencing investor sentiment and decision-making in the upcoming quarters.

Why Super Micro Computer (SMCI) Could Be a Hidden Gem for Growth Investors

Posted on by The INO.com Team

In March 2024, Super Micro Computer, Inc. (SMCI) became the latest artificial intelligence (AI) company to join the S&P 500 index, just a little more than a year after joining the S&P MidCap 400 in December 2022. Shares of SMCI jumped by more than 2,000% in the past two years, driven by robust demand for its AI computing products, which led to rapid sales growth.

Moreover, SMCI’s stock has surged nearly 205% over the past six months and more than 520% over the past year. A historic rally in the stock has pushed the company’s market cap past $48 billion.

SMCI is a leading manufacturer of IT solutions and computing products, including storage and servers tailored for enterprise and cloud data centers, purpose-built for use cases such as AI, cloud computing, big data, and 5G applications. The company has significantly benefited from the ongoing AI boom in the technology sector.

According to ResearchAndMarkets.com’s report, the global AI server market is expected to reach $50.65 billion by 2029, growing at a CAGR of 26.5% during the forecast period (2024-2029).

Specializing in servers and computer infrastructure, SMCI maintains long-term alliances with major tech companies, including Nvidia Corporation (NVDA), Intel Corporation (INTC), and Advanced Micro Devices, Inc. (AMD), which have fueled the company’s profitability and growth.

Let’s discuss Super Micro Computer’s fundamentals and growth prospects in detail:

Recent Strategic Developments

On April 9, SMCI announced its X14 server portfolio with future support for the Intel® Xeon® 6 processor with early access programs. Supermicro’s Building Block Architecture, rack plug-and-play, and liquid cooling solutions, along with the breadth of the new Intel Xeon 6 processor family, enables the delivery of optimized solutions for any workload and at any scale, offering superior performance and efficiency.

The upcoming processor family will be available with Efficient-core (E-core) SKUs rising performance-per-watt for cloud, networking, analytics, and scale-out workloads, and Performance-core (P-core) SKUs increasing performance-per-core for AI, HPC, Storage and Edge workloads. 

Also, the upcoming processor portfolio will feature built-in Intel Accelerator Engines with new support for FP16 on Intel Advanced Matrix Extensions.

In the same month, SMCI expanded its edge compute portfolio to accelerate IoT and edge AI workloads with a new generation of embedded solutions.

“We continue to expand our system product line, which now includes servers that are optimized for the edge and can handle the demanding workloads where massive amounts of data are generated,” said Charles Liang, president and CEO of SMCI.

“Our building block architecture allows us to design and deliver a wide range of AI servers that give enterprises the solutions they need, from the edge to the cloud. Our new Intel Atom-based edge systems contain up to 16GB of memory, dual 2.5 GbE LAN ports, and a NANO SIM card slot, which enables AI inferencing at the edge where most of the world's data is generated,” Liang added.

Also, on March 19, Supermicro unveiled its newest lineup aimed at accelerating the deployment of generative AI. The Supermicro SuperCluster solutions offer foundational building blocks for the present and the future large language model (LLM) infrastructure.

The full-stack SuperClusters include air- and liquid-cooled training and cloud-scale inference rack configurations with the latest NVIDIA Tensor Core GPUs, Networking, and NVIDIA AI Enterprise software.

Further, SMCI announced new AI systems for large-scale generative AI featuring NVIDIA's next-generation of data center products, such as the latest NVIDIA GB200 Grace™ Blackwell Superchip, the NVIDIA B200 Tensor Core, and B100 Tensor Core GPUs.

Supermicro is upgrading its existing NVIDIA HGX™ H100/H200 8-GPU systems for seamless integration with the NVIDIA HGX™ B100 8-GPU, thus reducing time to delivery. Also, the company strengthens its broad NVIDIA MGX™ systems range with new offerings featuring the NVIDIA GB200, including the NVIDIA GB200 NVL72, a comprehensive rack-level solution equipped with 72 NVIDIA Blackwell GPUs.

Additionally, Supermicro is introducing new systems to its portfolio, including the 4U NVIDIA HGX B200 8-GPU liquid-cooled system.

Solid Third-Quarter 2024 Results

For the third quarter that ended March 31, 2024, SMCI’s revenue increased 200.8% year-over-year to $3.85 billion. Its non-GAAP gross profit grew 163.9% from the year-ago value to $600.59 million. Its non-GAAP income from operations was $434.42 million, up 290.7% year-over-year.

The server assembler’s non-GAAP net income rose 340% from the prior year’s quarter to $411.54 million. Its non-GAAP net income per common share came in at $6.65, an increase of 308% year-over-year.

As of March 31, 2024, Super Micro Computer’s cash and cash equivalents stood at $2.12 billion, compared to $440.46 million as of June 30, 2023. The company’s total current assets were $8.06 billion versus $3.18 billion as of June 30, 2023.

Charles Liang, President and CEO of Supermicro, said, “Strong demand for AI rack scale PnP solutions, along with our team’s ability to develop innovative DLC designs, enabled us to expand our market leadership in AI infrastructure. As new solutions ramp, including fully production ready DLC, we expect to continue gaining market share.”

Raised Full-Year Revenue Outlook

SMCI expects net sales of $5.10 billion to $5.50 billion for the fourth quarter of fiscal year 2024 ending June 30, 2024. The company’s non-GAAP net income per share is anticipated to be between $7.62 and $8.42.

For the fiscal year 2024, Supermicro raised its guidance for revenues from a range of $14.30 billion to $14.70 billion to a range of $14.70 billion to $15.10 billion. Its non-GAAP net income per share is expected to be from $23.29 to $24.09.

CEO Charles Liang said he expects AI growth to remain solid for several quarters, if not years, to come. To support this rapid growth, the company had to raise capital through a secondary offering this year, Liang added.

Meanwhile, finance chief David Weigand said that the company’s supply chain continues to improve.

Bottom Line

SMCI’s fiscal 2024 third-quarter results were exceptional, with a record revenue of $3.85 billion and a non-GAAP EPS of $6.65. This year-over-year revenue growth of 200% and year-over-year non-GAAP EPS growth of 308% significantly outpaced its industry peers.

After reporting outstanding financial performance, the company raised its full-year revenue forecast as it points to solid AI demand.

Super Micro Computer, which joined the S&P 500 in March, has a unique edge among server manufacturers aiming to capitalize on the generative AI boom. Notably, the server maker’s close ties with Nvidia allow it to launch products superior to competitors, including Dell Technologies Inc. (DELL) and Hewlett Packard Enterprise Company (HPE).

The company has a history of being among the first to receive AI chips from NVDA and AMD as it assists them in checking server prototypes, giving it a head start over rivals. This has positioned SMCI as a key supplier of servers crucial for generative AI applications, leading to a remarkable 192% surge in shares so far this year.

According to an analyst at Rosenblatt Securities, Hans Mosesmann, “Super Micro has developed a model that is very, very quick to market. They usually have the widest portfolio of products when a new product comes out from Nvidia or AMD or Intel.”

Moreover, analysts at Bank of America project that SMCI’s share of the AI server market will expand to around 17% in 2026 from 10% in 2023. Argus analyst Jim Kelleher also seems bullish about SMCI. Kelleher maintained a Buy rating on SMCI’s stock.

According to the analyst, Super Micro Computer is a leading server provider for the era of generative AI. Alongside a comprehensive range of rack and blade servers for cloud, enterprise, data center, and other applications, SMCI offers GPU-based systems for deep learning, high-performance computing, and various other applications.

Given solid financials, accelerating profitability, and robust near-term growth outlook, investors could consider buying this stock for substantial gains.