Micron Technology, Inc. MU's fiscal second-quarter earnings preview Monday signals that the stock is "too inexpensive to ignore," according to KeyBanc Capital Markets.
The Analyst
KeyBanc analyst Weston Twigg upgraded Micron Technology's stock rating from Sector Weight to Overweight with a new $53 price target.
The Thesis
Micron said on Monday it expects to earn $2.70 to $2.75 per share in Q2 on revenue of $7.2 to $7.35 billion, Twigg said in a note. (See the analyst's track record here.)
This marks an improvement from the company's prior guidance of $2.51 to $2.65 per share on revenue of $6.8 to $7.2 billion. The favorable announcement makes the stock look not only undervalued, but "too inexpensive to ignore" at just 4.1x the analyst's 2019 EPS estimate — which represents a discount to the peer average of 6.2x, he said.
Micron's update signals that long-term demand trends will remain mostly positive for at least the next two years, Twigg said. While NAND pricing could decline amid a temporary oversupply related to the 3-D NAND ramp, the market will shift back to undersupply by the end of 2018, according to KeyBanc projections. DRAM trends appear to be "very good," the analyst said.
"We would use any near-term weakness associated with NAND pricing concerns as an opportunity to build positions ahead of a likely NAND recovery in the second half of 2018," Twigg said.
Price Action
Shares of Micron were trading higher by 4.75 percent at $41.27 during the Tuesday morning trading session.
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