Micron Technology Stock Up 7% Today – Time to Buy MU Stock?

The price of Micron Technology stock is surging 7% in pre-market stock trading action this morning following the release of the firm’s financial results covering the first quarter of its 2022 fiscal year after beating analysts’ estimates for both revenues and earnings.

For the three months ended on 2 December, the Idaho-based manufacturer of electronic components reported total revenues of $7.69 billion resulting in a 33.2% jump compared to the same period a year ago although sales declined 7% on a sequential basis. The figure was in line with analysts’ estimates for the period.

“The sequential revenue decline was predominantly attributable to weakness related to non-memory component shortages at our customers”, stated Sanjay Mehrotra, Micron’s Chief Executive Officer.

Adjusted gross margins experienced a significant improvement compared to a year ago as they landed at 47% compared to 30.9% reported in Q1 2021 but they slid 90 basis points compared to the previous quarter.

Meanwhile, adjusted operating margins stood at 35.4% compared to 16.9% the company reported a year ago and 37.1% reported the previous quarter. On the other hand, Micron’s adjusted net income experienced a 175.5% increase on a year-on-year basis but also declined on a sequential basis.

As a result, adjusted diluted earnings per share fell to $2.16 compared to $2.42 reported in Q4 2020 but significantly better than the $0.78 the firm produced back in Q1 2021. The figure beat analysts’ estimates of $2.11 for the period.

For the second quarter of the 2022 fiscal year, Micron is expecting to report total sales ranging between $7.3 and $7.7 billion and adjusted diluted earnings per share ranging between $1.85 and $2.05 per share.

As per Capital IQ, the market was expecting total sales of $7.3 billion and adjusted EPS of $1.87 per share for the period.

Market participants appear to be reacting positively to today’s report as the company signaled that it was starting to see some degree of “stabilization” in the demand from certain segments.

What can be expected from this tech stock after today’s positive report and corresponding pre-market uptick? In this article, I’ll be assessing the price action and fundamentals of Micron Technology stock to outline plausible scenarios for the future.

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Micron Technology Stock – Technical Analysis

The latest price action in MU stock seems to have validated the bullish pennant pattern that formed after the strong uptrend that the issue experienced from November 2020 to April this year.

The chart above shows that this pattern was broken in early November and the price has climbed above its 200-day simple moving average again in the weeks that followed. This points to a bullish mid-term outlook for Micron Technology stock.

Today’s uptick is possibly favoring that view and the price action in the following days could further confirm it if bulls manage to push MU stock above the $90 level.

That said, momentum indicators are not positive at the moment as the Relative Strength Index (RSI) remains on a downtrend and seems poised to drift below the 50 level (bearish).

Meanwhile, the MACD has just crossed below the signal line and negative histograms reading have been steadily increasing in the past few days.

The contradiction between the price action and these momentum signals is not necessarily worrying in the context of a break of this bull flag pattern.

What this could mean is that market participants are taking a pause after the strong uptrend that led to this break. As long as the 200-day SMA holds, currently standing at $79.4 per share, chances are that we could see Micron stock surging to fresh all-time highs if the fundamentals permit it.

Micron Technology Stock – Fundamental Analysis

Today’s results and guidance are both pointing to a significant improvement in the top-line performance of Micron Technology for the entire 2022 fiscal year as the company keeps being lifted by industry-specific tailwinds.

Chip shortages have kept prices above the average while higher demand from data centers on the back of increased cloud computing demand during the pandemic may continue to have a positive impact on Micron’s financial performance in the medium term.

Gross margins have also kept improving to the mid-to-high 40s and earnings per share could be estimated to land somewhere around $8 per share on an adjusted basis for Micron.

As a result, the stock is currently trading at just 10 times its forecasted EPS for this 2022 fiscal year as the market continues to see these tailwinds as short-lived.

One important factor that is also possibly weighing on Micron’s stock performance is the fact that the company is investing heavily in building crucial infrastructure to ramp up production in the following years.

Considering that the demand for semiconductors is expected to keep surging on the back of an accelerated digital adoption, the short-term impact of the negative free cash flows resulting from this decision is not necessarily bad as it seems clear that the management has a long-term vision for the business.

With this in mind, today’s depressed valuations could provide an attractive entry price for patient investors who might be willing to wait until these investments pay out.

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