Micron Technology, Inc. (NASDAQ:MU) stock looks set to enter into a consolidation phase ahead of Q4 earnings later this month.
Shares of Sanjay Mehrotra led Micron Technology, Inc. (NASDAQ:MU) have made a fantastic recovery after hitting a 3 month low in August. MU stock is up more than 25% since then. This recovery was in line with our earlier call to not sell Micron stock. The latest rally has taken the stock's year-to-date returns to nearly 58%. The massive recent run brings us to an important question: Does Micron stock still have the legs to climb higher? How far can MU stock go from here? Let's take a closer look.
NAND Flash market outlook very encouraging for Micron.
A recent DigiTimes report states that NAND flash market is forecasted to be more than $65 billion in 2020, up from $40 billion in 2017. Further, the overall memory storage market is projected to top $120 billion by 2020. In comparison, the overall memory storage market is expected to hit $95 billion this year. The actual talking point is that NAND flash market revenues are anticipated to exceed the DRAM segment in 2020. This bodes really well for Micron which shows there is a lot of growth potential in the long-term. Presently, Micron generates the bulk of its revenues from the DRAM segment. In the last quarter, NAND revenue constituted only 31% of the company's total revenue. Micron presently has 13% market share in the NAND market. The NAND flash market outlook is really encouraging for the company. Sanjay Mehrotra, the CEO, also emphasized in the last earnings call that they are focused on developing and diversifying their NAND device offerings which could help increase their market share.
Bear Turns Bull.
The majority of the analyst community is bullish on Micron. According to Yahoo Finance, 27 out of 30 analysts covering MU stock have a buy or strong buy rating and 3 have a hold rating. Goldman Sachs (NYSE:GS) was one firm which was not as bullish on the DRAM and NAND maker as the others on Wall Street. Goldman Sachs analyst Mark Delaney had earlier downgraded Micron shares in May to Neutral but has now admitted that it was a mistake. Recently, Delaney upgraded his rating on Micron back to buy and hiked his price target to $40 from $33, representing a 15.64% upside from yesterday's close. Delaney thinks the company will deliver earnings above Street expectations in fiscal 2018. The firm suggests the strength of the memory chip market is still strong which they had underestimated in May.
MU stock could enter a consolidation phase.
MU stock is up nearly 8% alone since the beginning of last week. The recent run-up in Micron stock has landed the stock in overbought territory. After yesterday's uptick, the share price has breached the upper Bollinger Band to signal an overbought condition. The Relative Strength Index (RSI) indicator is also flashing an overbought signal with the current RSI reading at 82.65, well above the commonly used overbought threshold of 70. Generally, the combined signal from the two popular momentum indicators is considered a strong signal. With the MACD indicator trending up and the stock trading comfortably above all its key moving averages, it is highly unlikely we will see a major pullback. Given the strong fundamental case, MU stock could enter into a consolidation phase ahead of the earnings announcement scheduled for the month end.
The general sentiment about Micron stock is very bullish and it is a strong buy. Investors should accumulate more shares on any dip going ahead. The bullish scenario got another boost from the latest short interest numbers. The short interest in MU stock fell by a big 11.4% in the latest reporting period. Now, short interest stands at only 4.6% of the float and the days to cover came in at 2 days. Micron is likely to post solid Q4 earnings and the 2018 outlook looks very strong with analysts tipping the company to ride many tailwinds. Some analysts are also suggesting the company would benefit from the recently launched new Apple products. Wall Street analysts currently have an average price target of $43.72 on MU stock, which represents a nearly 27% upside from the last closing price. When taking into consideration all of these qualitative/fundamental factors, we believe investors should look to acquire positions in Micron. The business seems solidly positioned to top estimates on both the top and bottom line, in the latest earnings.
Looking for fundamentally strong tech stocks? Check out Amigobulls' top stock picks from the tech sector, which have beaten the NASDAQ by over 150%. Interested in automotive stock? Then, we also have our top picks from the auto sector, which have beaten the S&P 500 by over 247%. If you're a trader though, you should check out our daily trading ideas section for daily, free updates on the latest crossovers and other popular technical signals.