Should You Buy Micron (MU) Stock Ahead of Q4 Earnings?
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Should You Buy Micron (MU) Stock Ahead of Q4 Earnings?
Shares of Micron (MU) slipped once again Monday on the back of two significant price cuts from BMO Capital Markets and Deutsche Bank (DB). Micron's recent decline is part of a roughly 25% downturn over the last three months. So, the question is what should investors do with Micron stock ahead of the firm's upcoming fiscal fourth-quarter earnings release?
Shares of Micron MU slipped once again Monday on the back of two significant price cuts from BMO Capital Markets and Deutsche Bank DB. Micron’s recent decline is part of a roughly 28% downturn over the last three months. So, the question is what should investors do with Micron stock ahead of the firm’s upcoming fiscal fourth-quarter earnings release?
Recent News
Deutsche and BMO analysts slapped lower 52-week price targets on Micron Monday, citing weakness in the semiconductor firm’s pricing. BMO analyst Ambrish Srivastava slashed his target by 25% to $45 per share, which represented just a 3.2% upside compared to MU’s price of $43.58 following the close of regular trading Monday.
Meanwhile, Deutsche's Sidney Ho also lowered Micron’s 12-month price target by roughly 25%. Yet Ho's new $60 per share price target represents approximately 38% upside. “While the investment community has been in general wary about NAND pricing for some time, it is the weakness in DRAM pricing, which we believe has caught investors by surprise," BMO’s Srivastava wrote in a note to clients. "We believe downward estimate revisions for Micron are just beginning. Our estimates remain below those of consensus."
Monday’s newly subdued price targets follow RBC Capital Markets analyst Amit Daryanani, who last week lowered his price target for MU stock from $83 per share to $70 per share. Daryanani pointed to “memory cycle headwinds” as a major reason for his less optimistic price.
Despite some of the negative news sounding Micron recently, some of which stems from trade war worries, the memory chip giant announced in August its plans to invest $3 billion in its Virginia plant by 2030 in order to increase memory production. Plus, more importantly, Micron hopes to lift its overall capital expenditure into the low 30s as a percentage of revenue over the long haul to help it catch up to rivals’ spending as chips become smaller, and often more expensive and complex to make.
Price Movement
Micron had been a Wall Street superstar before its recent decline. Shares of MU have still surged 155% in the last two years, which outpaces the S&P 500’s 36% and its industry’s 68% jump. Investors will also notice that MU stock has crushed its industry over the last ten years.
MU stock has cooled off a lot recently, with shares of Micron up just about 6% since the start of the year. Plus, shares of Micron have plummeted over 25% in the last three months. This includes a nearly 10% decline in the last month alone. MU stock closed regular trading at $43.58 per share Monday, which is roughly $20 below its 52-week high of $64.66 per share.
Valuation
On top of the fact that Micron stock is “cheaper” than it has been over the last six months, MU is currently trading at 4.3X forward 12-month Zacks Consensus EPS estimates, which represents a massive discount compared to its industry’s 10.9X average and the S&P’s 17.5X. Plus, Micron is trading way below Nvidia’s NVDA 36.8X and AMD’s AMD 64.8X.
It is also worth pointing out that MU has traded as high as 6.8X over the last 12 months, with a one-year median of 5.1X.
Outlook
Looking ahead, our current Zacks Consensus Estimate is calling for Micron’s fiscal Q4 revenues to soar by roughly 33.9% to reach $8.22 billion. At the other end of the income statement, Micron’s adjusted quarterly earnings are projected to soar over 63.3% to touch $3.30 per share, while its full-year earnings are expected to skyrocket 136%.
Investors should also note that Micron’s quarterly EPS projection has climbed by $0.17 over the last 90 days. However, Micron’s Q4 earnings projection hasn’t changed over the last 60 days and MU’s Most Accurate Estimate—the representation of the most recent analyst sentiment—is calling for earnings of $3.28 per share, which is two cents worse than our current consensus.
Bottom Line
Micron has matched or topped our quarterly earnings estimates in 12 straight quarters. This run of strong bottom-line performance includes earnings beats in the trailing five periods. Yet, these beats have not always helped Micron stock climb immediately following its quarterly earnings release.
Micron is currently a Zacks Rank #3 (Hold) and sports “A” grades for both Value and Growth in our Style Scores system. With all that said, investors might want to think about buying MU stock ahead of its quarterly earnings release, especially since the company’s stock price has been hit so hard recently.
Micron is scheduled to release its fiscal Q4 2018 financial results after the market closes on Thursday, September 20.
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