While most tech stocks took a beating in the wake of Donald Trump’s election win, Micron Technology, Inc. (NASDAQ:MU) has been an exception to the rule. The shares are up nearly 20% since Nov. 9, even eclipsing potential psychological resistance at $20. But MU stock isn’t done yet.
On Wednesday next week, Micron will step into the earnings confessional to release its fiscal first-quarter earnings report, and if the past year’s improving fundamentals have anything to say about it, MU stock should be off to the races once again.
Dialing down on expectation, Wall Street will be looking for a profit of 28 cents per share from Micron next week, a 16.6% improvement over the same quarter last year. What’s more, revenue is expected to rise 18.7% year-over-year to $3.98 billion.
That said, some in the brokerage community may have set their targets a bit higher.
For instance, EarningsWhispers.com puts Micron’s first-quarter whisper number at profit of 31 cents per share — three cents better than the consensus.
Speaking of the brokerage community, analysts may appear overly bullish on the surface, but there is plenty of room for improvement still. Currently, data from Thomson/First Call reveals that 18 of the 26 analysts following MU stock rate the shares a “buy” or better.
But, as Citi Research demonstrated last week, there is always room for initiations. The brokerage firm started coverage on MU stock with a “buy” Wednesday last week, with a $30 price target — representing a 57% upside potential.
And there is certainly room for improvement on the price-target end, as the consensus target of $21.41 represents a meager upside premium of only about 7% for MU stock.
Click to Enlarge Options traders, on the other hand, are betting heavily bullish on Micron stock ahead of next week’s quarterly report. Currently, the December/January put/call open interest ratio rests at 0.58, with calls nearly doubling puts among options set to expire within the next two months. What’s more, this ratio drops to 0.56 for the weekly Dec 23 series, indicating optimism specifically targeted at Micron’s quarterly report.
Overall, weekly Dec 23 series implieds are pricing in a potential post-earnings move of about 8.8% for MU stock. The resulting upper bound lies at $21.76, above recent resistance at $21, while the lower bound rests at $18.24, well above support at MU’s 50-day moving average.
2 Trades for MU Stock
Call Spread: Strong price action, improving fundamentals and growing support among analysts and options traders all add up to continued gains for MU stock. The only obstacle is short-term resistance at $21, which should fall with next week’s earnings report. Traders looking to bet on a breakout might consider a Jan 2017 $21/$22 bull call spread.
At last check, this spread was offered at 35 cents, or $35 per pair of contracts. Breakeven lies at $21.35, while a maximum profit of 65 cents, or $65 per pair of contracts, is possible if MU stock closes at or above $22 when January options expire.
Put Sell: With the Fed looming large tomorrow, and many on Wall Street calling for the end of the Donald Trump rally, a more neutral-to-bullish trade may suit more conservative traders. Specifically, a weekly Dec 23 series $18 put sell has a high probability of finishing out of the money.
At last check, this put was bid at 15 cents, or $15 per contract. In this trade, you keep the premium as long as Micron stock closes above $18 when weekly Dec 23 options expire at the end of next week. On the downside, if MU trades below $18 prior to expiration, you could be assigned 100 shares for each put sold at a cost of $18 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
