Micron Stock Is Bouncing Back, Remains A Good Buy

Micron Technology, Inc (NASDAQ:MU) has bounced back from the recent sell-off and is poised to go higher.

Micron Stock Is Bouncing Back, Remains A Good Buy

Shares of Boise, Idaho based semiconductor company Micron Technology, Inc (NASDAQ:MU) are starting to gain momentum once again. After delivering more than 100% return in one year, the rally in Micron stock had cooled off. In fact, Micron stock had corrected by around 15% as the shortages in the memory market abated to some extent. The shortages in the memory chip market had been driving the prices for these chips higher over the last few quarters and these shortages were expected to continue going into the next quarter which could have kept memory chip prices elevated, resulting in higher revenues and improved margins for Micron.

DRAMexchange, the global leader in DRAM/NAND research, had predicted that the DRAM prices would see a sequential improvement of 3%-8% in Q3 2017 due to these shortages. But over the past month, these shortages were of lesser magnitude than expected. A part of the price correction was also driven by profit booking. However, the stock has been gaining some of its lost ground in the last one week and the recent analyst commentary on the stock has remained bullish. Micron stock has gained around 12% in the last five trading days.
MU stock chart

Micron stock recently received a buy rating from Stifel Nicolaus analyst Kevin Cassidy who argued that the rising importance of memory chips will keep the demand tight. He believes that memory chips are replacing microprocessors as the most important part in server computers. Cassidy also expects Micron's gross margins to improve due to better cost structure. "We believe Micron has greatly improved its Flash cost structure, and expect the company's costs will continue to decrease moving forward. The company reiterated that it has the smallest 3D NAND die size in the industry, which allows its current products to be more competitive in terms of cost," Mr. Cassidy wrote in a note to his clients.

Micron stock received another bullish commentary from Morgan Stanley analyst Joseph Moore who has an "Overweight" rating on Micron stock with a price target of $36 per share. While admitting that memory chip shortages have cooled a bit over the past month, he still expects the demand to remain strong. "Memory shortages have abated somewhat based on our conversations with computing customers,” writes Moore, "but the market is still healthy with most cloud participants indicating an expectation that supply will remain tight through next year, and continued increases in mobile DRAM in 4q." 

Micron Technology, Inc has delivered strong revenue growth.

Micron has continued to deliver strong performance driven by the strong demand for DRAM and NAND chips. After registering a sequential revenue decline for six consecutive quarters, Micron has delivered sequential growth in the last four quarters. In the latest quarter, the company saw its top line grow by 93% YoY to $5.57 billion. Net Income for the quarter came in at $1.65 billion, a massive jump from the $215 million loss Micron had reported in the year-ago quarter. The sustained improvement in the company's fundamentals has driven the strong rally in Micron stock.

MU revenue chart

Micron stock makes a bullish crossover.

Micron's technicals are also sending bullish signals. Micron stock recently made a bullish crossover with its 100-day moving average resistance line and in yesterday's trade, the stock closed above its 50-day moving average line. Micron's MACD has also turned bullish, crossing over the signal line from below. All these indicate that the rally in Micron stock is likely to continue. MU Technical chart

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Kumar Abhishek Kumar Abhishek   on Amigobulls :

Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice.

Buying and selling of securities carries the risk of monetary losses.Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions.

Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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