Micron (MU) stock has been victim to a whirlwind of issues in the stock market. There’s an oversupply of inventory, pricing pressures, a trade war with China, a negative outlook for Apple as sales have been poor and the market, in general, is suffering. Despite all that, Seeking Alpha blogger James Cotter says the chip market is always in a cycle – and that we are currently just experiencing a downbeat. Cotter says Micron executives have a plan for this exact scenario. (To watch Cotter’s track record, click here)
“[…] Micron management has been proactive in creating and utilizing operational synergies to bring down operating expenses to maintain EBIT margins. With increasing capital intensity, firms are tasked with bringing down other operating expenses spending in order to allow for R&D spending. Cost-cutting will help to absorb the continued slowdown in Trade NAND and the peak in DRAM pricing. The company is currently in one of the strongest operating cash positions in its history.”
Cotter notes the company continues to grow operating cash flow while managing to pay off debts, improving the balance sheet. The decrease in operating and financial leverage offers a larger cushion for the coming downturn in pricing.
“The fact is that Micron is a leader in the memory market – a market that is driven by data – and in an economy that is now driven by data, the company is in a place of extreme opportunity. Micron has the chance to expand into higher-margin businesses that will offer margin expansion as the company continues cost-cutting, paying down debt and buying back stock,” Cotter explains.
Cotter doesn’t fail to mention the risks. He notes with semiconductors being so involved in emerging markets (and investing in China) it is important for investors to recognize the key risks involved when trading a name like Micron.
“The stock has underperformed both the S&P (SPY) and its sector (SOXX) as of late […] For investors looking to take a long-term view on the secular shift toward Big Data and the continuously increasing demand for memory storage, this is an investment to take seriously,” the blogger concludes.
Does Wall Street appreciate the risk/reward factor here all the same? TipRanks analytics shows analysts consider MU a “Moderate Buy,” as out of 25 analysts, 16 are bullish, 8 are sidelined and 1 is bearish. (See MU’s price targets and analyst ratings on TipRanks)