Shares of Micron (NASDAQ:MU) have been on a cautious rise lately as investors and analysts worry less and less about the DRAM and NAND market. Slowly but surely, markets are starting to trust the idea that the semiconductor market has bottomed out. That’s great for chipmakers and memory companies — MU stock included.
Analysts have been warming up to the name too. The latest is JPMorgan, who maintained their overweight rating and bumped their price target from $50 to $65. With shares ending last week near $49, the price target implies almost $16 in upside, or more than 30%.
Bulls on Board
Harlan Sur of JPMorgan says that NAND pricing is ahead of their expectations, while DRAM is relatively in line with their expectations. Further, he expects next quarter to mark the trough in gross margins, while an “inflection in [the] cloud data center” should help drive revenue. Strong demand for gaming, PCs and smartphones should also help.
JPMorgan analysts aren’t the only the ones bullish on Micron, though.
Last week, Micron also caught a price target boost from $55 to $65 at Cascend Securities. The analysts maintain a buy rating and believe MU has “good value” after evaluating the DRAM market.
Among the bullish camp, many are forecasting and making similar observations with their channel checks. That is, many expect margins to bottom in the next quarter or two and for demand to stabilize and improve in Micron’s end markets.
Now, can it get to $65?
Trading MU Stock
Back in April, we were looking for a breakout over the $44 to $45 area. MU stock had all the hallmarks of an ascending triangle, a bullish technical pattern. Rising uptrend support (blue line) was squeezing the stock into a static level of resistance (purple line). In this case, that resistance came into play between $44 to $45.
If MU stock price closed above this mark, it could have potentially continued higher as it broke out. Instead, the charts unwound and Micron stock took a tumble. Shares finally put in a double bottom down near $32.
For now, shares are holding up above $49. This is where MU topped out after it finally pushed through $45 resistance. After another brief fall below $45 and another breakout, shares ran to $51.39, the September higher. I would love to see MU consolidate above $49, with the 20-day moving average trending higher.
However, investors won’t have long to wait for some action. Micron stock reports earnings on Thursday. While it’s not guaranteed to be volatile, most of its post-earnings moves pack quite a punch.
On the upside, look to see if MU stock can close above the September highs at $51.39. That could send it on its next breakout higher, putting a $65 price target that much closer. If $49 fails as support, as does the 20-day moving average, it’s vital that $44 to $45 — prior resistance — acts as support.
If it does, or if the 50-day supports MU stock, it may be a dip-buying opportunity.
Bottom Line on Micron Stock
The trouble with MU stock? Supply and demand — and I’m not talking about the actual stock. I’m talking about memory.
If demand dries up and/or supply is too high in the DRAM and NAND markets, companies like Micron suffer. Others come under pressure too, like Lam Research (NASDAQ:LRCX), Western Digital (NASDAQ:WDC), Applied Materials (NASDAQ:AMAT).
For this quarter, analysts expect Micron’s revenue to decline almost 46% year-over-year to $4.57 billion. Further, they expect an 84.2% decline in earnings to 48 cents per share.
That’s vastly below the fiscal year rates, with estimates calling for revenue to decline 23.9% this year and for earnings to decline almost 48% year-over-year. Should it turn out that we’re not near a trough in Micron’s business, then there is surely more downside coming.
As it stands, in fiscal 2020, analysts expect the slowdown to ease. Estimates call for revenue to decline “just” 13.5%. However, they expect an even worse earnings contraction, calling for profits to decline more than 55%.
18 times next year’s earnings estimate of $2.69 per share isn’t cheap. But if MU can deliver on the upside and management gives a promising outlook, analysts’ estimates — and MU stock price — may move higher.
So what’s the bottom line? See if $45/the 50-day moving average holds on a pullback. On the upside, look for a close over $51.39.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.ed securities.