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Micron (MU) Stock Remains a Longer-Term Value Play, Says Analyst Ahead of Earnings

support@smarteranalyst.com (Ben Mahaney)

Micron (MU) reports fiscal third-quarter results after close today, and investors are bracing for more bad news.

The company — which saw its stock skyrocket more than 30% between January and May — is really feeling the effects of the US-China trade tensions. Since May, shares are down 23% as the two countries continue to battle, and its shares are now about even for the year. This evening, when Micron releases earnings, investors are expecting the bad news to continue, as pricing and demand continue to be a challenge for the chip giant.

But analyst Eric Ross of Cascend Securities is looking at the stock as a “a longer-term value play,” as he maintains his Buy rating. (To watch Ross' track record, click here)

Though Ross likes Micron “as a company,” he believes “the stock recovered a bit too early in this cycle.” While many thought that the trade war was over, investors are worrying that the renewed tension will “be long and drawn-out, and the stock has pulled back” on the concern. But because of this, Ross says he finally sees the stock as pulled back again to an attractive level, justifying an investment.

The industry is facing major challenges, as lower selling prices have been caused by high inventory and it will take time for things to normalize. Further, tensions between the US and China continue to play a negative role in sentiment. Micron generates more than half of revenue from China — $17 billion out of a total $30 billion in 2018 — which continues to be at risk as the two countries battle. If Chinese tariffs were to directly impact Micron, revenue and sales would decrease even more than what is currently expected.

But even as Ross is a buyer of MU, he cautions investors — you put money into the stock only “if you are willing to wait a year to see significant returns." Because of uncertainty and geopolitical tension, the analyst says “EPS guidance is likely to come down further,” but does not expect it to “come down enough to make MU not look like a good value.”

All in all, Micron is getting hit from multiple angles right now and cannot control the geopolitical struggle impacting its business. While the industry will soon normalize, the company is still facing a threat with the US and China trade war. That said, TipRanks’ analysis of 20 analyst ratings shows confidence, with 11 analysts recommend Buy, five say Hold and four suggest Sell. The average price target among these analysts stands at $42.35, which implies a 25% upside from where the stock is currently trading.

 

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