Micron (MU) stock has been a big winner for investors following the truce in U.S.-China trade war tensions — the stock has rallied over 30% in the past 30 days.
From early 2018 to present, MU went on a roller coaster ride from $40, to $60, to $30, and now back to $45.
First, there was the chips market collapse. While things were looking good in early 2018, the downturn hit and wiped out Micron’s stock — NAND and DRAM prices plummeted, as demand slowed and supply remained high, contributing to lower revenue and weaker outlook for the company. Recently, China-related fears have been on the minds of many investors. The US-based company generates the majority of its revenue in China, and trade tensions between the two countries are once against weakening the outlook for Micron.
But as the chips market is slowly recovering and the US and China are displaying more friendly rhetoric, RBC Capital analyst Mitch Steves raises his price target on MU stock to $55 (from $50), while maintaining an Outperform rating. (To watch Steves’ track record, click here)
Overall, Steves remains positive and believes “the worst of NAND memory pricing is now behind us.” The analyst also believes Micron will be able to “show positive operating margins in the November quarter,” which will be a major step in the right direction.
Moving forward, Steves says there are five key items to look for, including inventory levels, recent spot price increase, potential Korea/Japan resolution, Hyperscale capex comments for 2H and smartphone builds for the holiday season.
On pricing, while “the official bottom does not occur until the end of the year,” pricing is improving. Steves says he was “surprised to see DRAM spot prices go up,” but still believes “we could see flattish to slightly down trends until ~Q4.” But on NAND, Steves says “prices will actually increase Q3 to Q4.” Should this happen, it would “be a large change in expectations and 2020 EPS would likely move higher for Memory and Semi-cap equipment companies.
All in all, “Micron will likely see positive operating margins through this down cycle and should warrant a multiple increase,” Steves concluded.
TipRanks shows a large amount of bulls liking the odds on this chip giant. Out of 23 analysts polled in the last 3 months, 13 are bullish on Micron stock, 6 playing it safe on the sidelines, while 4 are bearish. However, is the stock overvalued or undervalued based on these analysts’ expectations? Consider that the 12-month average price target of $42.76 suggests a slight downside from where the stock is currently trading. (See MU’s price targets and analyst ratings on TipRanks)