Micron Stock Price Down 3% – Time to Buy MU Stock?

Micron (MU) stock was trading almost 3% lower in US premarket trading today. The stock traded flat in June but is up almost 15% in 2021. Is it time to buy Micron stock?

Micron Stock technical analysis

Looking at the charts, MU stock has found strong resistance at the 100-day SMA (simple moving average) which is currently at $85.75. Looking at the premarket price action, Micron stock could find support at the 50-day SMA in regular trading today. The stock’s 14-day RSI (relative strength index) of 59.9 is getting near overbought positions. Overall, the stock looks reasonably bullish on the charts.

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Micron stock price forecast

Micron has an average price target of $123.62 according to the data from TipRanks. The target price is a premium of 45% over current prices. Its highest price target is $165 while $105 is its lowest target price. MU stock even trades below its lowest target price.

Of the 16 analysts covering Micron stock 14 have rated it as a buy while two rates it as a hold or some equivalent.  None of the analysts has a sell rating on the shares. Over the last week, several analysts have revised their ratings on MU stock.

BMO upgraded Micron stock

Yesterday, BMO upgraded Micron stock to outperform and raised its target price from $90 to $110. “After staying on the sidelines for some time, the core of our positive thesis is due to the potential we see for a continued constrained supply environment into 2022 driven by a combination of supply dynamics/CapEx discipline, and demand drivers,” said BMO’s analyst Ambrish Srivastava.

While Srivastava is concerned about the slowing growth in personal computing, he expects the strong demand from the data center, AI, and mobile segments to offset the weakness. “We believe these concerns, while valid, would likely end up being short-term in nature given our longer term thesis on both supply and demand,” said Srivastava in his note.

Morgan Stanley is bullish on MU stock

Earlier this week, Morgan Stanley had also reiterated its buy rating on Micron stock. “Expectations for the quarter are high, while the 6-12 month outlook is mixed, creating a polarizing event. Recent underperformance skews the risk reward to the positive side, in our view, even though good numbers are well understood,” said Morgan Stanley analysts in their note. Goldman Sachs also issued a bullish note on MU stock last month even as it lowered the target price to $108 from $122.

Micron reported stellar earnings

Yesterday, Micron reported its fiscal third-quarter 2021 earnings after the close of US markets. The company reported revenues of $7.42 billion in the quarter which were higher than the $7.22 billion that analysts were expecting. The company had reported revenues of $5.44 billion in the corresponding quarter last year and $6.24 billion in the previous quarter.

Micron posted a non-GAAP net income of $1.74 billion in the quarter which implies an adjusted EPS of $1.52. “Micron set multiple market and product revenue records in our third quarter and achieved the largest sequential earnings improvement in our history,” said Micron’s President and CEO Sanjay Mehrotra.

MU increased capex budget

He added, “Our industry-leading 1α DRAM and 176-layer NAND now represent a meaningful portion of our production, and Micron is in the best position ever to capitalize on the long-term demand trends across the data center, intelligent edge and user devices.”

Micron reported positive free cash flows of $1.5 billion in the quarter and increased its fiscal year capex budget to over $9.5 billion. The company is investing in building new capacity to meet the surging demand for chips.

MU guidance also looks encouraging

Micron gave strong guidance for the fiscal fourth quarter and said that it expects to post revenues between $8-$8.4 billion in the quarter. The company expects adjusted gross margins between 46-48% in the quarter and is forecasting an adjusted EPS between $2.20-$2.40.

Separately, MU also announced that it would sell Lehi, Utah, fab to Texas Instruments at an economic consideration of $1.5 billion.

Micron stock outlook

Micron also sounded bullish on its outlook. In its release, it said that “While the pandemic remains a risk factor, CY21 is shaping up to be a strong year fueled by the macroeconomic recovery combined with secular drivers, such as AI and 5G, that are creating sustained demand increases across broad end markets.” The company added that “As a result, our expectations for CY21 DRAM and NAND bit growth have increased since our last earnings call, and we now expect CY21 DRAM bit demand growth to be somewhat above 20% and NAND bit demand growth in the mid 30% range.”

MU stock long term forecast

Commenting on the long-term forecast, Micron said that it expects the demand growth for DRAM to rise in the mid to high teens while it sees NAND demand rising at a CAGR of 30%. DRAM accounts for the bulk of Micron’s revenues.

Micron stock looks a good buy

Micron stock currently trades at an NTM (next-12 months) PE multiple of 8.13x which looks very attractive. The multiple has averaged 14.2x, 13x, and 17.1x over the last one year, three year, and five-year periods respectively. The massive valuation discount for MU stock over its long-term averages looks unwarranted especially considering the current semiconductor supercycle.

MU stock looks like a good buy at these prices and a good way to play the global chip shortage situation which is expected to persist for the next few quarters. Over the medium to long term also, the growing demand for electric cars and smart gadgets bodes well for chipmakers like Micron. Today’s fall in MU stock could be an opportunity to buy it at lower prices.

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