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Micron Technology, Inc. (NASDAQ: MU ) is heading for a big move. Since October, MU stock has traded in a remarkably narrow range. It's rarely left the thin band between $40 and $45 share, despite tons of Micron news occurring during that time.
However, after quiet periods, stocks often make big moves. And in the case of Micron, the signs are now pointing to a breakout. With earnings exploding and analysts rushing to raise their price targets, the train is about to leave the station.
The recent selloff in stocks has probably kept MU stock from taking off, but don't expect it to hang out in the low $40s much longer. Here are three reasons why MU stock should move higher in coming months.
Improving Analyst Sentiment
Micron is no stranger to favorable analyst coverage. The consensus price target for the firm is now $59. That's almost 40% upside for MU stock from today's price.
Against that favorable backdrop, things are picking up even more. For example, following earnings, Stifel raised its price target from an already positive $75 to a downright giddy $85/share. If MU stock hits $85, it would almost be a clean double from today's price.
Stifel stated that Micron's recent moves point to an industry that isn't as cyclical as it used to be. This earnings stability, combined with the forward PE ratio below five, in their view, makes for the strongest of bullish setups.
That wasn't all. Weston Twigg, a KeyBanc analyst, upgraded MU stock from "Sector Weight" to "Overweight" also following Micron's Q2 pre-announcement.
Holding Its Own in a Weak Market
Since the start of February, it's been a war zone out there for tech stocks. The Powershares QQQ Trust (NASDAQ: QQQ ), which tracks the Nasdaq 100 index, has gotten hammered. From a high of $170 two weeks ago, the QQQ ETF fell to as low as $150 last week, a 12% decline.
More specifically to Micron, semiconductor stocks have taken the brunt of the damage. The sector had been one of the biggest winners in the market in 2017.
So when sellers took over, they absolutely pummeled the leading semi stocks such as Nvidia Corporation (NASDAQ: NVDA ) and Texas Instruments Incorporated (NASDAQ: TXN ) that had been powering the market higher.
However, MU stock largely shrugged off its peers' struggles. The stock entered February around $43 and is essentially flat since then during the stretch where other tech stocks have lost serious altitude. That speaks well to Micron's outlook. When tech gets its momentum back, a stock like Micron which held up during the decline should be one of the new leaders in the ensuing rally.
Earnings Coming in Strong
Micron surprised the market by updating its second quarter guidance last week. And as Bret Kenwell noted , the numbers are phenomenal.
As recently as December, analysts forecast just $6.2 billion in sales and $2.03 in EPS for the current quarter. At the time, Micron told the street to look for $7 billion in sales and around $2.58 in EPS. Those are huge jumps, more than 10% on revenues and almost 30% for EPS.
And it raised the bar again last week. Micron is now anticipating $7.2 billion in sales and around $2.72 in earnings. It's not unusual for management to update guidance a bit as a quarter develops, but this is something else. To see revenue gains this big, Micron has to be experiencing some serious sales momentum.
As a result, MU stock is shifting from being cheap to being outlandishly cheap on a 2018 earnings basis. As Kenwell wrote, "Micron stock trades at a ridiculously low valuation. Let's put it this way: MU stock trades at roughly 15 times second quarter earnings estimates."
For the full year, Micron is now trading at less than 5x forward earnings. Sure, earnings are unlikely to stay this hot forever. Memory is a cyclical business. But as Stifel noted, Micron has taken meaningful measures to reduce the peaks and valleys within its business.
Bottom Line on MU Stock
When I last wrote about Micron in December, I warned that the stock wasn't likely to do much in the near future. At that I time, I wrote :
"The recent tax-related dip offers a chance for nimble traders to make some quick bucks. But I'd steer clear of shares for much more than perhaps a play into this quarter's earnings report which drops next week."
Since then, two months have passed, and the stock is still stuck in the low $40s.
But unlike in December, everything is now lining up for a big move upward in MU stock.
The earnings pre-announcement shows that Micron's earnings boom is more sustainable than we'd previously thought. Analysts have rushed to upgrade MU stock following the news. And technically, the chart is setting up for a big move after a period of consolidation. Given the other factors, expect that next direction to be upward.
Just from a technical chart basis, a move up to new 15-year highs above $50/share seems in the cards. And if Q3 shows anything close to the same upside that Q2 has so far, MU stock could reach as high as $60 by summer.
At the time of this writing, the author held TXN stock and had no positions in any of the other aforementioned securities. You can reach him on Twitter at @irbezek.
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