Semiconductor maker Micron (MU) has been posting a notable comeback: shares gained 22% so far in 2018 and 92% over the last 12 months, blowing away the broader market. Micron stock has looked a bit soft throughout July, though, with sentiment centered on the fact that a Chinese court granted the blockage of some of Micron’s products. Management, according to CNBC, said the affected product will affect sales by around 1%. But is another, more powerful positive catalyst in the cards for MU?
Possible Micron Stock Buybacks
As CNN Money reported, companies have used cash from tax cuts to buy back a record amount of stock last quarter: over $436 billion — almost double to prior record. Recently, Nomura analysts Romit Shah expressed that Micron’s free cash flow — which includes a $2 billion credit line and $8 billion in cash — could be used to buy back stock in coming quarters. Shah does expect the stock to get a boost as a result, particularly because current estimates are so conservative.
On the flip side, other analysts, according to the Wall Street Journal, have noted that buybacks aren’t always positive catalysts. Management isn’t always buying its own shares at appealing prices — and buybacks aren’t always the best way that cash could be spent.
MU Stock Growth
Currently, Micron is expected to earn $11.77 per share this year, followed by $11.65 next year. Shah thinks Wall Street may be expecting $1.50 per share too little for earnings over the next four quarters.
“We think this means that consensus is either not factoring in the buyback or contemplating a 10%-15% decline in profit next year, which appeals overly conservative in our estimation,” he wrote.
Those conservative estimates give the stock a forward price-to-earnings ratio under 5 and PEG ratio of 0.13.
The Bottom Line on Micron Stock
I’m sympathetic to the aforementioned critiques of recent stock buybacks. Buybacks tend to lead to extremely generic headlines assuming the decisions is a good one, that will benefit shareholders, when things are notably more complex than that. The good news is that, for Micron, the buyback would simply represent a little more wind at its back.
With an upward climb well underway, a buyback wouldn’t be make or break or a desperate attempt to jumpstart shares. That’s already happening.
Right now, the median price target for shares is $80, good for another 38% upside, while the highest estimates show the stock more than doubling. Technically, shares simply have to get through some resistance at the stock’s current 52-week high before breaking out again.
With four straight earnings beats in the books, there’s little reason to think anything is going to knock Micron off its current upward trajectory in the near future.
As of this writing, Robert Martin did not hold a position in any of the aforementioned securities.
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