Written by Nathaniel E. Baker
Micron Technology Inc. (MU) shares had a tough start to the month, dropping from $42.50 on March 1 to close at $37.83 on March 7. Concerns over pricing of dynamic random action memory, or DRAM, chips, have hurt the stock. Analysts have already started cutting revenue estimates ahead of earnings on March 20.
All of which raises the question: could this be a buying opportunity? Curious about this potential I read through the most recent Seeking Alpha articles on this stock. Here is the state of affairs:
- A firm believer in Micron's value is TickerSquare, which cites a P/E of 3.5. While the early year rally was not sustainable due to DRAM prices, it is unlikely that earnings will go negative. Micron enjoys many positive catalysts, with optimism over the trade war resolution topping the list. Still, DRAM prices have been the most reliable short-term indicator for this stock and after taking profits in the low $40s, TickerSquare believes "sidelines is the best place to be for now."
- Micron's prospects should improve in the second half of the year as seasonality improves and fears of a trade war abate, writes Nima Abbaszadeh. A number of technical factors are in the stock's favor, implying that the downtrend could be at an end.
- As the semiconductor industry consolidates, Micron will be better able to control supply with more demand, according to Lyn Alden Schwartzer. Speaking on the Financial Exchange Radio podcast last month, Schwartzer said she's been bullish on MU since December. In five years, the stock should be worth $70 per share, she said.
- After a 14% drop from recent highs, "fear seems to be building in the name once again," writes Bill Maurer. Revenue estimates have come in "quite a bit" since Micron's last earnings report in December. Compared to the previous quarter's report, in September, the consensus has fallen even more dramatically. Analysts are right to be worried as "it appears that DRAM pricing is tracking below prior expectations which already called for a sharp drop."
- Also picking up on the DRAM drama is Elazar Advisors LLC. In their March 6 note, "What's Up With Micron?", Elazar notes how DRAM made up 68% of Micron's revenues last quarter. With prices of the chips down an anticipated 20% in Q1 it implies a fall-off in demand for the company's main product. A lot of this is driven by a decline in mobile phone sales, primarily in China. Whatever the reason, Micron's inventories will likely show a build up on the next quarterly report. There is very little margin for error if the company's business is going to pick up in the second half of the year.
- MU's rally earlier this year, from $30 to $40 per share, was very much a result of the broader tech sector, writes Kwan-Chen Ma. As recently as late February, Micron shares were trading at a 10% premium over the forward fundamental forecast price. With MU's stock price historically closer linked to revenue, earnings, and DRAM prices, it was due to decouple from the tech sector at large. Without an improvement in fundamentals, it will be difficult for MU to rally anew.
It obviously makes a statement when one of the most outspoken bulls is on the sidelines over concerns about DRAM pricing. Indeed the DRAM concerns appear to be the central feature of the bears' thesis.
Not all Seeking Alpha readers buy this story. "Guidance and DRAM have been weak all year - this whole sector rallied against any supporting evidence from Jan 1," writes m8. "So now everyone's positioned, there are few buyers left and it can now test the low to mid 30's."
"With MU, you don't need to worry about this and that and what DRAM price is doing today or tomorrow," khuiwong9 said. "You just need to know MU will be the future and it will reach $80 for sure."
Other readers do view the recent sell-off as a buying opportunity. "Markets are a discounting mechanism, if you wait for the all-clear on DRAM you’ve missed the rally," said Rebooter.
"I think we're at a local low right now," Ian Croci said on March 7. "There's definitely more upside than downside here."
Some readers point to a confluence of negative factors and a cyclical downtrend that presage tough times for the stock. "Overall, MU is just suffering from numerous issues that are out of its control," writes linklinklink (who separately said he's a longterm bull but bearish for this month). "In order to go up again I personally think the S&P needs to retest its lows similar to November 2015."
Of course a few readers are outright bears. "DRAM price has not bottomed, nor has EPS started to lead the way higher," said shadyhickory. "Disappointment from the trade discussions on March 1 will send the stock down again. Earnings and guidance on March 20 will send the SP down if trade discussions don't."
What are your views on MU? Let us know in the comment section below.
SA Bull & Bear is a series on Seeking Alpha that visits top stocks and summarizes the key bull and bear arguments on them. It serves as a quick review for anyone looking at the stock and a touchstone to continue the conversation for Seeking Alpha readers.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.