Save for Nvidia Corporation (NASDAQ:NVDA), you would be hard-pressed to find a semiconductor stock that is hotter than Micron Technology, Inc. (NASDAQ:MU). Since Feb. 21 Micron stock has risen as much as 21%, from $23.77 to a high of $29.87 on March 24.
Why is that date important? It was then, on Feb. 21, I told you MU was heading to $30. Although the shares missed that mark by 13 cents, I reserve the right to call it a win.
And the same bullish arguments I placed when I first made the call still exist today. Plus, following the Micron’s better-than-expected earnings results, Micron stock should now reach $35 in the next two quarter, delivering about 26% reruns.
Reasons to Love Micron Stock
Micron, which closed Friday at $27.82, down about 7% from its March 24 high of $29.87. Despite the recent pullback, which is nothing but profit-taking, MU shares are still up 27% year to date, including 20% gains in the past three months.
Aside from improved pricing in the DRAM and NAND memory chip market, the Boise, Idaho-based semiconductor company continues to benefit from improving profit margins, helping it to beat Wall Street’s bottom line forecasts seven straight quarters.
New CEO Sanjay Mehrotra has made the best out what was once a bad situation where DRAM and NAND chips, those found in portable devices like tablets and MP3 players, had become commoditized.
It now appears that, at a time when the market has taken a turn for the better, Micron continues to take market share from its competitors like Samsung Electronics (OTCMKTS:SSNLF), Toshiba (OTCMKTS:TOSBF) and Western Digital Corp (NASDAQ:WDC).
How do I know MU is taking market share? The fact that 60% to 65% of Micron’s revenue comes from its DRAM chip business and the company just grew second-quarter revenue by almost 60%, it’s putting up these numbers at the expense of some of its peers. Plus, it’s tough to now ignore the opportunities Micron also has on the NAND side of the business, considering that is where Mehrotra has the most experience.
Micron, which is now rumored to be on the acquisition hunt, has not only given shareholders plenty to be excited about, the company’s improving metrics is forcing Wall Street to become even more bullish about its growth prospects.
Mehrotra, who has brought in improved efficiency, now has higher revenue that has helped MU have move from posting earnings of 6 cents per share last year to where analysts now expect Micron to earn $4.28 per share this fiscal year. Good luck finding that level of performance in a five-year span, let alone one year.
And considering the company’s string of earnings beats, combined with upbeat guidance, MU continues to show no signs of slowing down, making Micron stock a hot commodity for years to come.
With Micron stock still priced attractively at a forward price-earnings ratio of 6.5, which is about twelve points below the S&P 500 Index, you would be hard-pressed to find another stock offering the combination of growth and value.
Assuming MU can achieve higher gross margins, combined with favorable DRAM pricing, these shares can reach $35 in the next couple of quarters and on its way to $40 in the 12 months, delivering some 40% returns.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
