Micron (MU) Stock Breaks-out To New 52-Week High; How to Play It

There’s always a point in the market when some stocks just become too cheap to ignore. And that seems to be what is driving shares of Micron (MU), which surged 6.3% to an eighteen-year high Monday, reaching $52.34 after taking out $50, which once served as a critical resistance level.

Shares of the semiconductor giant have now risen 8% in the past five days, gaining 26% for the year, easily flying past the 1.6% rise in the S&P 500 index. Back in September, I asked if Micron, which has crushed Wall Street’s earnings estimates in three straight quarters, would ever get the respect it deserves? Not only has the company’s revenue growth rate average 80% in the past four quarters, its earnings beats have come by an average of 18 cents in the past three reporting periods.

It would seem Wall Street is now starting to come around, valuing the Idaho-based company closer to its operational improvements, which was evident when I first recommended the stock in more than a year ago, when it traded at around $23. Concerns about the so-called “peak DRAM and NAND memory chip pricing” have disappeared. Investors now want to know if it is now too late to own the stock? I don’t believe it is.

Micron reports second quarter fiscal 2018 earnings in a couple of weeks, on March 22. The consensus analyst price target on the stock sits at $59.50, according to Yahoo! Finance. This target suggest potential premiums of 15% from current levels. Meanwhile, Rosenblatt analyst has a Street high price target of $85, which implies about 63% premium from Monday’s closing price. Assuming Micron beats earnings and guides with confidence, the company could easily take out the Street consensus and break above $60.

For the second quarter, which ends in February, Micron forecasts earnings of $2.51 to $2.65 per share on revenue of $6.8 billion to $7.2 billion. The Street, which has raised its estimates for both the fiscal second-quarter and for the full year, will be looking for $2.74 per share on revenue of $7.28 billion. Estimates for the quarter and full year have been raised by about 7% and 6%, respectively, just in the past thirty days.

Why are estimates climbing? As noted, the company has topped consensus EPS estimates by an average of 18 cents in the past three quarters. An 18-cent beat would come to $2.92 per share, which would crush the mid-point of its guidance range of $2.58 per share, would be too aggressive of a target. But EPS of, say, 84 to 86 cents is what I’m looking for, given the improved DRAM and NAND pricing Micron has enjoyed in recent quarters. Not to mention, the operational efficiencies the company has achieved.

All told, the same bullish arguments I’ve made for Micron of the past year still can be made today. And even with its recent gains, the stock is priced at just five times fiscal 2018 EPS of $10.13 per share, compared with a P/E of 18 for the S&P 500 index. This makes Micron, arguably, one of the cheapest stocks on the market. Accordingly, I’m raising in 12-month price target to $65, expecting returns of 25%.

At the time of publication Richard Saintvilus held shares of Micron.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Richard Saintvilus

After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.

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