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Why Micron (MU) Stock Is a Strong Buy Ahead of Earnings

Benjamin Rains
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Shares of Wall Street superstar Micron MU opened slightly lower on Monday, just two days before the company is set to release its third-quarter fiscal 2018 financial results. So let’s take a look to see why the semiconductor giant looks like a strong buy stock that investors might want to consider scooping up before Micron reports on Wednesday afternoon.

Recent News

J.P. Morgan JPM analysts reiterated their overweight rating for Micron stock on Monday, pointing directly to strong demand for memory in the cloud computing market. The analyst also reaffirmed his $82 price target, which marked a 41% upside from Friday's closing price of $58.23 per share.

"Stay long Micron heading into earnings,” Harlan Sur wrote in a note to clients. “We see further upside in Micron shares as the team is executing well in an overall constructive S/D [supply/demand] memory environment… demand fundamentals likely to remain strong driven by robust cloud data center spending."

The banking power’s Micron update comes just a few weeks after Micron announced that it is set to produce and ship the “industry's first 4bits/cell 3D NAND technology” along with Intel INTC. Micron also said it would repurchase $10 billion of outstanding common stock as part of a new plan to return at least 50% of free cash flow to stockholders starting in fiscal 2019. “The data-driven economy will transform nearly every industry, and drive secular growth in demand for memory and storage," CEO Sanjay Mehrotra said in a statement.

Investors should remember that stock repurchase plans often indicate that a company’s executives and board members believe shares are relatively cheap or at least a solid deal at their current price.

Stock Movement

Micron stock has skyrocketed nearly 371% over the last two years, which crushes the S&P 500’s 34% climb. Shares of Micron have also greatly outperformed its industry’s roughly 105% surge, which includes the likes of Intel, Advanced Micro Devices AMD, Broadcom AVGO, Nvidia NVDA, and Texas Instruments TXN.

 

Year to date, Micron stock has surged 41%, compared to its industry’s roughly 17% climb. Investors should note that MU has dipped 4.2% over the last three months, against its industry’s 6.5% gain. This recent dip helps make Micron stock look more attractive simply because it is cheaper, but that’s just the start.

Valuation

Coming into Monday, Micron stock was trading at 5.5X forward 12-month Zacks Consensus EPS estimates, which marks a huge discount compared to its industry’s 12.7X and the S&P’s 17.3X. If we dive a little deeper, Micron’s valuation picture looks even better.

 

Over the last two years, Micron stock has traded as high as 32.5X and as low as 4.2X, with a two-year median of 6.2X. Furthermore, Micron stock looks like a steal compared to Nvidia’s two-year median of 38.6X. With all that said, investors should be able to say with confidence that Micron stock is a great value investment, and it looks even better based on its impressive growth prospects.

Outlook

Our current Zacks Consensus Estimates are calling for Micron’s quarterly revenues to pop 38.3% to hit $7.7 billion. Meanwhile, the company’s full-year revenues are projected to soar nearly 46% to reach $29.62 billion.

Transitioning to the other end of the income statement, Micron’s quarterly earnings are projected to skyrocket nearly 94% to touch $3.14 per share. And if that growth projection didn’t impress investors enough, Micron’s full-year earnings are expected to soar over 132% to reach $11.53 per share.

Earnings Revision Activity

Investors should also note that Micron’s earnings estimate revisions activity has been extremely positive recently. MU has earned eight upward earnings estimate revisions for its third-quarter, against zero downward changes, all within the last 30 days. This helped lift Micron’s Q3 estimate by $0.28 per share. Within this same timeframe, Micron earned the same upward revisions ratio for its full-year earnings, which lifted its estimate by $0.49 per share.

Bottom Line

Micron is currently a Zacks Rank #1 (Strong Buy) and sports an “A” Grade for Value and “Bs” for both Growth and Momentum in our Style Scores system. Investors should remember that not only does MU stock present great value at the moment, it also sits below its 52-week high. Lastly, Micron is expected to expand both its top and bottom lines in a major way, while looking poised to surge in a growth industry.

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