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Why Micron Technology, Inc. Is Poised to Climb to $45 a Share

MU stock is poised to move higher, even after its big run-up

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Micron Technology, Inc. (NASDAQ:MU) soared after reporting quarterly earnings that easily exceeded estimates. Even after the current run-up, with shares above $40 a share, the stock is trading at a low valuation. Chances are good that as long as the business is strong, MU stock will continue its climb higher.

Quarterly Earnings

Why MU Stock Is Poised to Climb to $45 a Share
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Micron reported strong revenue, helped by its NAND and DRAM business. The company earned $2.02 a share, $0.18 per share more than consensus. Revenue rose a whopping 90.7 percent over last year. The EPS amounts to an annualized rate of $8.00 a share. Even if one assumed zero earnings growth in the next three quarters, MU is trading at a forward P/E of five times. Investors need only look at the gross margin figure to understand a super cycle in computer chips is underway. Gross margin rose to 51 percent compared to 18.6 percent year-over-year. Once 3D XPoint production ramps up, profitability may even exceed management’s own assumptions.

Looking ahead, the company set a revenue guidance as high as $6.5 billion for the next quarter (Q1), gross margin of up to 54 percent, and EPS in the range of $2.09 to $2.23 a share.

NAND, a key part to solid-state drives used in smartphones and computers, accounted for 30 percent of total sales. The smartphone refresh from Apple Inc. (NASDAQ:AAPL), Samsung, Xiaomi and other big names should only drive NAND demand even higher. Memory demand will also rise as suppliers add more DRAM per device. Apple’s iPhone X stands out as a monster of phones that will have plenty of memory and storage. The device comes in a 3GB memory configuration with either 64GB or 256GB of SSD storage.

PC Refresh Underway

Intel Corporation’s (NASDAQ:INTC) chip refresh in the desktop market, code-named Coffee Lake, and the new line of CPUs from Advanced Micro Devices, Inc. (NASDAQ:AMD) will drive both DRAM and NAND demand higher. New computer systems require more RAM compared to PCs from past refresh cycles. Even though Microsoft Corporation’s (NASDAQ:MSFT) Windows 10 runs efficiently with less memory, users generally add more, along with SSD storage for fast disk access, to get the best system running. The net impact of AMD’s Ryzen and Threadripper release and Intel’s chip update is more positive pricing pressure on DRAM and NAND.

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