Analyst's View On Micron Could Be A Good Contrarian Signal Ahead Of Earnings

Micron Technology, Inc. MU has been on an incredible run so far in 2018, surging 48.7 percent year-to-date. Analysts who weren’t on board the Micron train at the beginning of the year have been forced to play catch-up with their estimates, a phenomenon that could make the stock a compelling contrarian short idea ahead of Thursday's second-quarter report. 

The Analyst

BMO Capital Markets analyst Ambrish Srivastava reiterated a Market Perform on Micron and raised the price target for the stock from $43 to $63.

The Thesis

In addition to the higher price target, BMO raised its fiscal Q2 EPS estimates to a level roughly in-line with consensus estimates given the persistent strength in the DRAM market.

BMO is now calling for Q2 revenue of $7.275 billion and EPS of $2.73 billion.

BMO completely missed the mark on Micron this year, Srivastava said. 

“Forget knocking the cover off the ball, we have not even hit a single when it comes to our coverage of Micron so far,” the analyst said. 

For contrarian traders, the setup of a 48-percent three-month gain and analysts throwing in the towel and admitting defeat is precisely the type of dynamic that can signal a contrarian play. Market expectations for Micron stock are so high after its 48-percent gain that it could be difficult for the company to beat them. In addition, even analysts like Srivastava who have not been bullish on Micron in the past have been forced to raise estimates and price targets, adding to the bullish market sentiment.

Contrarian investors love to see signs of capitulation, and analysts admitting to blowing calls is a classic case. Micron bulls should approach this week’s report with caution, as it seems there are few bears remaining at the moment.

Price Action

Micron traders haven’t been taking profits heading into earnings. The stock is up another 2 percent in the past five trading sessions. Micron was down 0.13 percent at $61.07 at the close Wednesday.

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Photo courtesy of Micron.