Micron Stock Forecast: Micron (MU) Shares Show Consistent Algorithm Results

  This article was written by Esther Hanon, a Financial Analyst at I Know First  This article was written by Esther Hanon, a Financial Analyst at I Know First

“I can’t change the direction of the wind, but I can adjust my sails to always reach my destination”

—Jimmy Dean

Summary:­­­­

  • Memory-chip maker Micron Technology continued its skyward climb, following a breakout last week
  • Micron shares jumped 8.8% to close at 59.37 on the stock market on Monday, March 12 Micron stock broke out of a 14-week consolidation period with a buy point of 49.99 on March 5th.
  • Analysts are maintaining its outperform rating while many others are shifting towards a buy rating in the recent days.
  • Catalysts for Micron stock include higher DRAM chip pricing, margin expansion in NAND chips, and expectations for increased capital returns. Micron can also be an acquisition target as chip-industry merger activity intensifies.

Micron’s shares are breaking out, having rose over 9 percent to a $61 high from $55 on Monday at 1 pm. The breakout comes as the stock crossed a resistance level that stood at roughly $50, a level it has not seen in nearly two decades and then continuing to rise toward $58, the next significant resistance level, which happened to also coincide with the average analyst price target on the stock.

Source: Yahoo Finance, 13/3/2018

But the rise in share price is more than just the technical trading patterns, as analysts have steadily been raising their estimates for the current quarter and the full year for the company, and all together these forces have been helping propel the stock higher. Analysts currently have an average price target of about $58.30. Analysts’ average price target has climbed by roughly 10 percent over the past three months from $53.  Analysts are looking for the company to show that earnings grew by nearly 190 percent to $2.61 and that revenue increased by almost 55 percent to $7.20 billion when chipmaker next reports results on March 22.

If you have been paying attention to shares of Micron Technology Inc. (MU) over the past few weeks, you would have noticed that shares have been on the move with the stock up 28.47% over the past month alone. Micron Technologies hit a new 52-week high of $55 during the previous year and gained 31.25% since the start of 2018 compared to the 6.78% move for the Computer and Technology sector and a 31.25% year-to-date return for its peer group. The main driver in Micron’s stock stellar performance has been due to an impressive record of positive earnings surprises, having beaten the Zacks Consensus Estimate in each of the last four quarters. In its last earnings report on December 19, 2017, Micron Technology reported EPS of $2.45 versus the Zacks Consensus Estimate of $2.2 while it beat the consensus revenue estimate by 6.51%. For the current fiscal year, Micron Technology is expected to post earnings of $10.51 per share on $28.62 billion in revenues. This represents a 111.9% change in EPS on a 40.84% change in revenues. For the next fiscal year, the company is expected to earn $8.81 per share on $29.11 billion in revenues. This represents changes of -16.18% and 1.7%, respectively.

Shares in the Idaho-based chipmaker surged 9 percent on Monday after three brokerages, Nomura Institute, Evercore ISI, and Mizuho, all raised their price targets on the stock. The most-bullish analysis came from Instinet’s Romit Shah, who nearly doubled his price target for Micron to $100 from $55, predicting that the stock is in the “early stages of another major breakout”. In a research note published by Barron’s, Shah mentioned that the company is expected to continue benefiting from soaring demand for dynamic random-access memory (DRAM) and NAND flash memory chips. He expects a strong trading outlook to pave the way for a first-time dividend, share buy-back program and renewed M&A speculation. “We see DRAM pricing resuming an upward trend in Q2, a first-time dividend and share buyback announcement in May, continued margin expansion in NAND and increased M&A discussion as important catalysts,” he said.

Evercore ISI’s CJ Muse was similarly bullish about Micron’s ability to profit from a favorable market backdrop, who noted that the high barriers to entry DRAM industry has now been narrowed down to just three players. Muse has been encouraged by how Micron, one of these three companies, is taking advantage of this strong position, prompting him to hike his price target on the stock to $80 from $60. Hours after Shah and Muse upgraded their forecasts, Mizuho’s Vijay Rakesh followed suit. During Rakesh’s visit to the Asia Pacific region, where he met with many of the major DRAM and flash memory chip manufacturers, he had realized that demand for Micron’s products is strong enough to offset some “softness” in Apple iPhone X sales and other electronics in China. Those observations led him increase his price target on the stock to $66 from $55.

The significant projected increase in both revenue and earnings are positive for the company and the stock price. Perhaps what is even more important is a sign that analysts expect margins for Micron’s business to expand, as earnings grow faster than revenue. Since May of 2016, gross margins have steadily expanded every quarter for the stock, rising to approximately 55 percent in the fiscal first quarter of 2018, from 17 percent in May of 2016, a vast improvement.

Based on the technical breakout and analysts’ rising optimism about Micron, the stock may still have further to climb.  But should those margins slip, sentiment could change very quickly because earnings are likely to follow.

The previous year, 2017, was a significant year for Micron. Firstly, memory market oversupply has decreased because the cost of adding capacity has risen by over 250% since 2012. Even though companies have increased their capital spending, they cannot increase capacity as fast as they did in the past. Secondly, the memory market has consolidated, leaving few major suppliers, such as Samsung (SSNLF) SK Hynix, Micron, Toshiba (TOSBF), and Western Digital (WDC). These suppliers have adopted a supply discipline to protect their profits in the event of a slowdown in demand, thereby reducing the extent of oversupply. For instance, Samsung and SK Hynix stopped adding DRAM (dynamic random-access memory) capacity in mid-2016 after DRAM prices crashed. Lastly, memory products have diversified beyond the PC (personal computer) and mobile spaces to the IoT (Internet of Things) and automotive spaces. As the technology industry (QQQ) shifts toward AI (artificial intelligence) and IoT, whereby almost every electronic device will have some computing capability, the demand for data processing and storage is increasing.

Now the world is moving towards a connected economy, in which every device — from mobile phones to cars to home appliances, to industrial machinery to street cameras — may be connected to the internet and have computing capabilities. This trend is called edge computing.

In this interconnected world, additional features on the mobile will likely increase DRAM (dynamic random-access memory) content per device. On mobile, these features will be delivered through servers, driving demand for NAND (negative AND) storage in the data center. Hence, the growing demand for data processing and storage will likely drive demand for memory. These catalysts saw memory demand swell so much in 2017 that suppliers had trouble meeting demand. Now that the US tax bill passed in December 2017, the investment environment is favorable in the country, and more companies will likely invest in new technology, pushing memory demand.

The increasing adoption of AI (artificial intelligence) is driving both DRAM and NAND demand in the cloud and traditional enterprise data center spaces. The adoption of AI and AR/VR (augmented/virtual reality) by Smartphones is also increasing memory content per Smartphone. The growing popularity of eSports, cryptocurrency, and PC gaming is driving demand for graphics memory. The technology shift is also diversifying Micron’s customer base to include automotive and industrial IoT (Internet of Things) technology.

As such, we have seen that the algorithm accurately predicted the signal and direction of Micron’s stock over the past two weeks, before the stock hike occurred on Monday morning. In accordance with the forecast, it is evident that the company is in growth stages as they aim to achieve a plethora of objectives for the full year ending December 31, 2018. As a result, Micron has demonstrated unique stock performance as per the algorithm predictions, and aims to continue this performance boost throughout 2018. In accordance with the forecast, Micron’s stock returned 9%  on Monday alone, highlighting the accuracy of the prediction produced by the I Know First algorithm. We have yet to see the result of Micron’s success in the coming months, as we are confident that Micron is in an upward trajectory and it expected to grow in the coming months, as they develop and publish positive results.

Analyst Recommendations:

According to 29 analyst recommendations from Reuters, the current consensus is a “Outperform” in Micron Technology Stock, with 10 advising a “Buy”, 16 advising an “Outperform”, and 3 advising a “Hold.”

On March 4th, 2018, The I Know First algorithm gave bullish signals for Micron Technologies Inc.  for the 1-Month, 3-Month, and 1-Year algorithmic market trends. The numbers located in the bottom right indicate predictability scores, all of which are above .50 demonstrating a strong historical correlation and predictability value between past algorithmic predictions and the actual market movements for each particular asset. Scores above .50 such as the three forecasts below, indicate excellent success in I Know First’s algorithm in correctly predicting the stock’s movements.

I Know First’s algorithm has made accurate predictions on MU in the past, such as its bullish article published on October 1st, 2017, where Motek Moyen documented that Micron stock reached a 52-week high, reaching a level of $38.46 on September 28th. He also stated his opinion with the help of the algorithm, that Micron stock is bound to hit $42 by the time 2017 ends. This ultimately proved successful sooner than expected, as Micron’s closing price one month later on October 31st met the projected target price of $42, reaching a high price of $49.68 before the end of 2017.  Not only has the algorithm been successful in predicting the one month and three month-forecasts, as even the prices in-between and after these periods have prevailed as per the algorithm’s predictions. Micron’s stock price broke the $50 level on March 5th, with a stock price of $52.03, and has increased 51.4% from the time of this article on October 1st, until today, March 18th. In fact, by the end of 2017, Micron’s stock price reached a high of $45.75, 14% more than predicted in this article. Thus far, we have seen that Micron continues to impress with their superb results, as the algorithm has suggested, and will likely continue to rise as Micron introduces and releases new information regarding their growing reach in the tech market.

Conclusive Thoughts:

As we move toward autonomous cars and smart industries, the demand for memory and flash storage solutions could increase. These solutions have longer manufacturing times, slowing supply growth. As the adoption of AI increases in other sectors, such as finance, healthcare, and e-commerce, the demand for complex memory solutions could increase. However, these new industries are still in their infancy and will require a few years to grow. ­For Micron, immediate growth will likely come from the server, mobile, and SSD (solid-state drive) spaces. Based on the technical breakout and analysts’ rising optimism about Micron, the stock may still have further to climb.  But should those margins slip, sentiment could change very quickly because earnings are likely to follow.

I Know First Algorithm Heatmap Explanation:

The sign of the signal tells in which direction the asset price is expected to go (positive = to go up = Long, negative = to drop = Short position), the signal strength is related to the magnitude of the expected return and is used for ranking purposes of the investment opportunities.

Predictability is the actual fitness function being optimized every day and can be simplified explained as the correlation-based quality measure of the signal. This is a unique indicator of the I Know First algorithm. This allows users to separate and focus on the most predictable assets according to the algorithm. Ranging between -1 and 1, one should focus on predictability levels significantly above 0 in order to fill confident about/trust the signal.

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About Micron Technologies:

Micron Technologies Inc. is engaged in semi-conductor systems. The Company’s portfolio of memory technologies, including dynamic random-access memory (DRAM), negative-AND (NAND), Flash and NOR Flash are the basis for solid-state drives, modules, multi-chip packages and other system solutions. It’s business segments include Compute and Networking Business Unit (CNBU), which includes memory products sold into compute, networking, graphics and cloud server markets; Mobile Business Unit (MBU), which includes memory products sold into smartphone, tablet and other mobile-device markets; Storage Business Unit (SBU), which includes memory products sold into enterprise, client, cloud and removable storage markets, and SBU also includes products sold to Intel through its Intel/Micron Flash Technology (IMFT) joint venture, and Embedded Business Unit (EBU), which includes memory products sold into automotive, industrial, connected home and consumer electronics markets. The Company’s memory solutions enable computing, consumer, enterprise storage, networking, mobile, embedded and automotive applications. The Company markets its products through internal sales force, independent sales representatives and distributors primarily to original equipment manufacturers (OEMs) and retailers located around the world.