Investors have been looking for companies that are getting through the novel coronavirus without taking a major hit. And sure, there’s value in a good high-quality defensive stock. But don’t sell yourself short — there are great opportunities to go on the offense in this market as well. For example, look at Micron (NASDAQ:MU) stock.
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The semiconductor memory developer is shaping up to be a big beneficiary of the economic ripples that the new vius has caused. Many investors are sleeping on Micron as a social-distancing play. Micron doesn’t have the flashiest products when it comes to work-from-home trends. But its offerings are essential to powering several of the current technological megatrends that are transforming American life.
Micron is also under the radar because it last published earnings results on March 25 for a quarter that finished in February. Thus, it hasn’t put out any quarterly results since the Covid-19 crisis started to wreak havoc on the global economy. Further to that point, Micron is not scheduled to deliver its next earnings report until June 29. Fortunately, Micron gave an early indication of what next quarter’s results are going to look like.
Micron Is a Stay-At-Home Winner
Back in March, I urged subscribers to get long Micron. At the time, while the market was still panicking, I pointed out the silver lining for Micron, writing that: “The coronavirus could help boost semiconductor demand. Almost every commercial or recreational activity that eliminates or reduces human interaction relies on semiconductors.”
And in fact, this is precisely what has played out. Spaces like video games and online video conferencing have been among the market’s biggest gainers. As the market has woken up to the economic effects of the virus, stocks like Zoom Video (NASDAQ:ZM) have soared. But don’t forget that in order to power all that increased computing, you need more chips and more memory. That’s where Micron comes into the picture.
A Huge Guidance Increase
Late last month, Micron confirmed my hunch: Demand is way up. The company filed a regulatory document that provided investors with updated guidance. And the numbers were sizzling.
Micron raised its expected revenue for the quarter from a range of $4.6 billion-$5.2 billion to a new range of $5.2 billion-$5.4 billion. In other words, the old top-end estimate became the new bottom-end estimate. And if we were to use the midpoints of these two forecasts, the company boosted its guidance by $400 million, up from $4.9 billion to $5.3 billion.
Even more impressively, the company revealed that it expects to drop more than half of this revenue boost down to the bottom line and increase non-GAAP earnings by about $250 million more than it had forecast previously.
How will this translate to earnings per share? The company’s prior guidance called for the current quarter’s EPS to come in around 55 cents. The updated guidance anticipates a jump to at least 75 cents. If Micron sees this sort of demand continue through the full year, a 20-cent-per-share quarterly boost would cause a massive lift in forward earnings expectations.
Analysts Give the Thumbs-Up
In the wake of that guidance increase, numerous Wall Street analysts rushed to boost their outlooks for guidance. For example, Bank of America’s Simon Woo. He raised his price target for MU stock to $70, noting “stronger chip demand for the remote-work economy.”
Evercore ISI’s C.J. Muse raised his price target to $75 and stated, “The update is a clear positive for Micron, with memory trends holding up amidst COVID-19 pressure and exceeding investor expectation on growing concerns over falling spot memory prices.” Additionally, Raymond James analyst Chris Caso reiterated a “Strong Buy” on Micron stock and a $60 price target.
Caso’s price target is easily achievable. I see Micron’s guidance news as being the sort of thing that could help power MU stock to $60 and beyond. In fact, Micron shares rose from $45 to $55 in the days following the guidance boost, though they’ve slipped back a bit with the recent market volatility.
MU Stock Verdict
Obviously, in this uncertain and volatile virus-constrained economy, investors must be cautious about extrapolating one moment’s success too far into the future. We’ve seen how suddenly conditions can swing from good to bad. That said, this news from Micron was not just good, but very good. This is exactly the type of catalyst that should power Micron up to those $60-$75 price targets.
The company is likely to report blowout numbers this quarter. With the economy starting to reopen, a lot of industrial demand is starting to come back online as well. As such, I’m expecting the company to continue building on this momentum.
Eric Fry is an award-winning stock picker with numerous “10-bagger” calls — in good markets AND bad. He’s found 40-plus 1,000% or higher stock market winners/”10-baggers”. He beat 650 of the world’s most famous investors (including Bill Ackman and David Einhorn) in a contest. And today Eric is revealing his next potential 1,000% winner/”10 bagger” for free, right here.
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