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I'm Calling The Bottom On Micron

Jun. 04, 2020 1:55 AM ETMicron Technology, Inc. (MU)104 Comments
AB Capital profile picture
AB Capital


  • Micron's positive pre-announcement bodes well for the near term.
  • Though elevated inventory levels and DRAM spot pricing fluctuations are worth keeping an eye on.
  • Micron's earnings profile is evolving into a less cyclical one, with the ongoing re-balancing toward high-value solutions likely to prove accretive.
  • With 5G on the horizon, current valuations seem undemanding and present a favorable entry opportunity for medium to longer-term investors.

Those of us who've been around long enough will have less than fond memories of Micron's (NASDAQ:MU) vicious cycles. I do not think this has fundamentally changed but I think the future prospects for memory stocks are a lot more upbeat – yes, the cycles still exist, but the peaks and troughs are set to be a lot more muted going forward, in my view.

To be clear, I think the short-term case for Micron is challenging – the latest spot DRAM pricing data indicates likely weakness in the upcoming quarters. But much of this has been priced in and thinking medium to longer term, I like the stock on demand-side strength as next-generation technologies (5G, AI, etc.) proliferate and the ongoing shift toward higher value-add solutions gain traction.

With both product and end-market diversification on the rise, I think long-term investors stand to win through 1) multiple expansion as earnings predictability improves and 2) earnings growth as the stock benefits from secular tailwinds. At the current ~1.4x fwd book, MU stock may have bottomed, in my view, presenting investors with a highly asymmetric risk/reward opportunity.

Positive Pre-announcement Ahead of the May Quarter

Micron's most recent 8-K filing disclosed a raised forward guidance for the upcoming quarter, on improved demand as well as supply-side dynamics. The raise was broad-based – management now expects revenue, gross margin, and EPS to land above the prior guided ranges. Key drivers include DRAM and NAND demand in response to the recent work-from-home trend, offset by weak smartphone and auto demand. A summary of the latest guide is as follows:

Source: Form 8-K

The Bernstein conference call on the day of the filing provided some useful context into the numbers – there's a fair bit of conservatism going into FY21, with management tightening their belts on opex and

This article was written by

AB Capital profile picture
Semi-retired investor and former buy side professional. Keeping an eye on special situations and event-driven opportunities across the equity and credit universe. All views are my own.

Analyst’s 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.

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Comments (104)

jeffkad profile picture
Not aging well...
Scott Taylor profile picture
MS raise MU price target today from $52.50 to $65. Just thought I would let you all know.
linklinklink profile picture
Monday will be interesting

Scott Taylor profile picture
I had CNBC on in the background today in my hospital room. I couldn't believe how negative they all were. They picked on retail and they actually seem angry the market is doing well at this point. I am not saying the market is totally safe here but they seem a bit overboard.
linklinklink profile picture
@Scott Taylor

You're in the hospital? I missed that, what's going on?
To Scott: Hope You are OK! I will put you on my prayer list. You take care of yourself and be sure to keep posting.

Wishing You Good Health!
@Scott Taylor best of luck with your health and recovery!
linklinklink profile picture
Investors have loved buying bankrupt companies instead of profitable ones.

linklinklink profile picture
All bubbles end in euphoria. The cruise lines, air lines, buying bankrupt companies like Hertz might have been the last swing.
Looks like classic stagnation over $53. Looks like its going to be cratering shortly.
To ashah64: “Stagnation” or “Consolidation”? I deem to think of MU at $52.75-$53 as a consolidation level to absorb the gap from $46 to almost $55 I just little over a week. If MU can hold at this point ($52.80), I suspect it can break $55 on Report Day (June 29) and maybe make a run to $57.50 before it stops again. JMHO.

Wishing You Well!
linklinklink profile picture
Moment of truth this week. We'll see if J. Powell juices markets tomorrow.
He sure will!
linklinklink profile picture
Party is over, back down to $47?
To link: I just “loaded up” at $52.57!

The “Party” is NOW On! LOL!

Wishing You Well!
Since when did some modest consolidation after a monster rip higher mean the "party is over"?

Guess I missed that page in the investing manual that said stocks move up in a straight line.
To Rebooter: As long as Retired One owns MU and CGC, “the Party Will NEVER Be Over!”

The results of CGC always gives me the munchies and I love “chips” with my Margaritas and Guacamole.

Wishing You Well!
Buying MU this morning at $52.96.

Wishing Well To The Author And MU Shareholders!
linklinklink profile picture
I wonder if the Fed is seeing a problem in the banking sector again because Repo interventions have spiked!

If you total worldwide trillions added by all the “Feds” I think you will come up with something like 15T. All have not been released or anywhere close. I have a very good friend who is extremely smart and this is his field and he thinks they are going to get away with this total inflation. With negative rates and basically only the market to invest, hang on to your hat and do not fight the Fed has never been more true.
The FED can't afford to let the stock market drops. So many pension plans are tying up to the stock market. These pensions already underfunded with stocks high flying early this year. It would create havoc if stock stays low and unable to service pensioners. So the FED needs to keep the stock market high at any cost.
S&P can go to 3800 before the end of the year. 5 trillion dollars on sidelines now and some of that money are getting very impatient
05 Jun. 2020
I think you are right the bottom is in until this cycle ends.
Airlinemike profile picture
You’re now calling the bottom after it’s up 58% from March 18 and has already made several breakouts to the upside? I really hate to sound mean but I’m not that impressed.
linklinklink profile picture

I'm calling the top on Micron shares. It'll happen sometime next 36 months.
Luke2020 profile picture
The stock price has TOPPED. Earnings are TANKING, but the stock price is getting PUMPED Artificially! This BUBBLE is a commodity stock. MU is Generating the same earnings as it did in 2016 when the stock price was $10.00 per share.
Current P/E=30
Forward P/E=45
Historical P/E=3.
Think&GrowRich profile picture
No offense, truly trying to help you.

You can’t value cyclical companies how you’re describing.

If it seems too counterintuitive then stay away from them in general for your own financial health.

You can’t use straight line fundamental analysis. If you want to use revenue you’re going to have to normalize revenue levels over time to account for up and down cycles.

If you prefer ratios, then relative price to book based on cycle is better but still not perfect for MU.
Dex4Sure profile picture
@Luke2020 Lesson number one: P/E is borderline useless metric. Basing your investment decisions solely on P/E is a recipe for poor performance on today's market.
S_Archer profile picture
Reminder: the target price is 55-57 regardless of riots, hostage taking, viruses, socialist or dictator presidents. buy at 50, sell at 60.

I am not smart enough to know what happens if the government gives everyone 30K per year in free money. @linklinklink needs to figure that out quickly . I am using the money to build a wall around my house with a moat with piranhas ... but that's just me.
S_Archer profile picture
@linklinklink Mr Griffin is my hero. Not very bright and seriously outkicked his coverage wife-wise.... Once Lana Kane and I get married I will have achieved my goal
linklinklink profile picture
How are my cruise line stocks up 25% pre-market... The Fed printing is out of control.
This has to stop
You can take profit and enjoy the money instead of complaining.
Unfortunately that approach doesn’t work when the only thing the person enjoys IS complaining.
Flex68 profile picture
"Those of us who've been around long enough will have less than fond memories of Micron's (MU) vicious cycles."

Actually, those of us who've been around long enough might have appreciated them!

Perhaps not as steady or timely as OMAB used to be, but........
linklinklink profile picture
MU stopped right on the trend line.

kscopes profile picture
@tresL's: Ya. it's a good good trend so far!
lllong mmmu.
linklinklink profile picture

Tomorrow we find out if it is heading up to the next trend line.
I guess we found out today. Uptrend it is
Heard a million bullish comments on MU but this is a perennial dog. I remember their CEO announcing a 10 Billion dollar buyback which never happened. This dog will only go one way and that is down. Besides their footprint is in commoditized segments of memory. No hope. I sold my position today. Sell sell sell.
Dex4Sure profile picture
@Tiger231 I heard your kind of talk back when MU was $10. When retail investors have lost hope and post constant negativity its a buy.
khanjar24 profile picture
They.... spend 50% of their FCF on buybacks, and at this time, have I think spent about ~3-4B of the alotted 10B. I'd look, but since your comment was so lazy that you claim they're not doing buybacks, I don't care enough to know how much of the 10B is done.
To khanjar24: Last I saw was right at 2.8 billion (maybe 3 by now?)

Wishing You Well!
Nice summary of micron business. Thank you. Do you have any update of their 3DXP?
Mack Attack profile picture
Bottom at 1.7 BV?

Maybe. But it could be mid cycle too, this ones impossible to tell.

Obviously short and medium term looks great! Huawei could be a damper though.

Long term SHOULD be good in 2021, 22 but the water is just so muddy right now.
What's up with MU moving up $2.xx + today? Thoughts on movement over the next 3-4 weeks until earnings date at end of June?
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