The semiconductor industry is taking a hard hit as a global slowdown and increased supply of memory cause a ruckus in the marketplace. Micron (MU) is no less affected than any of the other companies of its kind. Its products are commoditized and a big part of the company’s focus is DRAM, where the company earns 2/3 of its revenue. Blogger Rob Koyfman asks the question: When is this stock going to hit its bottom?
“We introduce a framework which analyzes the previous two downturns in 2010-2012 and 2014-2016 to put the current downturn in perspective and quantify when Micron stock will trough. The cycles before 2010 probably don’t apply to the current downturn because the industry has consolidated significantly over the past 10 years. Using this framework, MU will likely bottom in 2H2019 and has 20-30% more downside,” Koyfman explains. (To watch Koyfman’s track record, click here)
The blogger notes the previous two cycles lasted between 7 and 9 quarters based on peak-to-trough EBITDA margins and expects this low will be a bit shorter – at 4 – 6 quarters before the stock begins to recover. However, Koyfman explains the stock won’t make its way right back up, rather trade “sideways” near the bottom of the cycle.
“For traders/investors with a 6-9 month investment horizon, MU will likely decline another 20-30% and represents an attractive short opportunity,” the blogger suggests. “For long-only and value investors, MU will present a buying opportunity later this year. Use history as a guide and wait until valuation is “dirt-cheap” on a P/TB. In addition, be patient until earnings revisions have started to trend up before buying the stock. Once analysts begin to revise EPS estimates up, this is a good signal that the cycle has entered an upswing.”
Overall, while facing some tough times, Micron still has support from Wall Street. Out of 26 analysts polled by TipRanks in the last 3 months, 15 are bullish on Micron stock, 10 remain sidelined, while only 1 is bearish on the stock. With a return potential of nearly 46%, the stock’s consensus target price stands at $47.80. (See MU’s price targets and analyst ratings on TipRanks)