Micron (MU) Stock Poses Favorable Risk/Reward Despite Near-term Headwinds, Says MKM

In business as in life, context is everything. Micron (MU), on paper, beat both revenue and EPS estimates in Q4. Wall Street, however, wanted to get the dirt on guidance, which is where the story fell apart.

Investors got a sense of a potential downturn in the memory, with the company giving a lower-than-expected guidance for the fiscal first-quarter. The chip giant said it expects to produce revenue between $7.9 billion and $8.3 billion, along with non-GAAP earnings per share of $2.95, plus or minus $0.07. The street was expecting revenue guidance of $8.4 billion and EPS guidance of $3.06. Unfortunately, Micron’s guidance for both metrics came up short, sending shares tumbling nearly 3% in Friday’s trading session.

Despite the somewhat bearish sentiment, MKM analyst Ruben Roy remains bullish on Micron shares, reiterating a Buy rating with a $63 price target, which implies an upside of 41% from current levels. (To watch Roy’s track record, click here)

Roy commented, “We remain positive on MU shares despite near-term revenue and gross margin headwinds as we continue to believe that longer-term demand trends for memory, both DRAM and NAND, are likely to remain robust. Within this backdrop, we expect a rational supply environment to benefit industry participants’ profitability. While we expect some concerns that MU’s share repurchase intentions are not aggressive in the near-term, we would note that the company specifically said that it views the company’s shares as undervalued, that MU is committed to buying back $1.5 billion in the first quarter and is assessing an accelerated rate of completion for the $10 billion program.”

“In the meantime, we believe that MU’s company specific execution on technology ramps, cost reduction, and balance sheet improvement goals remain a strong, longer-term positive relative to ongoing profitability. In our updated model, we forecast trough quarterly EPS for the current cycle at $2.50. With shares trading at less than 5x trough, we continue to view the risk-to-reward for MU shares as favorable,” the analyst concluded.

Roy is certainly not the first analyst with an optimistic outlook for Micron’s shares. A total of 23 analysts currently provide ratings; 18 of them are bullish, while 5 remain sidelined. The 12-month consensus mean price target for the stock is $69.04, reflecting over 50% upside over Friday’s closing price. (See MU’s price targets and analyst ratings on TipRanks)


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