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Buy 'Cheap' Micron (MU) Stock Before Earnings, Despite Chip Price Worries?

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Micron Technology (MU - Free Report) stock has outperformed the semiconductor market’s impressive 2019 comeback. Despite this climb, shares of Micron rest far below their 52-week high. So, is now the time to buy Micron stock with the company scheduled to report its second-quarter fiscal 2019 financial results after the closing bell Wednesday?

Quick Overview

Micron is one of the largest makers of DRAM and NAND memory chips. DRAM chips are used in personal computer, servers, and more, while NAND flash memory helps fuel the smartphone market, along with solid-state hard drives.

The Boise, Idaho-based firm reduced its full-year spending plans last quarter on the back of lower-than-projected demand in the historically cyclical semiconductor market. On top of that, DRAM pricing has reportedly fallen by roughly 30% this quarter, according to TrendForce. And the industry research firm is not alone in its assessment. “We expect significant deterioration in memory margin profiles by a much greater magnitude than what is dialed into consensus,” Susquehanna Financial Group analyst Mehdi Hosseini wrote in a note to clients last month.  

Falling memory chip prices look poised to hurt Micron as well as others like Western Digital (WDC - Free Report) . Meanwhile, some of the hotter names in the broader semiconductor market, such as Nvidia (NVDA - Free Report) and Advanced Micro Devices (AMD - Free Report) , have suffered based on slowing demand from cryptocurrency miners, among other negative factors. Nvidia CEO Jensen Huang called NVDA’s Q4 “an extraordinary, unusually turbulent, and disappointing quarter.” Micron clearly operates a different business, but MU has to deal with some weakness in the PC and smartphone markets, which have impacted giants like Apple (AAPL - Free Report) .

Despite the headwinds, shares of MU have soared 25% this year, to top its industry’s 20% climb, the S&P 500’s 13% jump, and giants such as Intel (INTC - Free Report) . Still, Micron stock rested roughly 39% below its 52-week high of $64.66 per share through late afternoon trading Monday at $39.60.

 

 

Valuation

Moving on, we can see that Micron’s valuation picture has climbed over the last few months. The reason is pretty simple: MU stock climbed, while its earnings estimates plummeted. With that said, investors can see that Micron is currently trading at a major discount compared to its industry’s average, as it has over the last two years.

MU is trading at 7.5X forward 12-month Zacks Consensus EPS estimates at the moment, which represents a significant discount compared to the S&P’s 16.8X. Plus, Micron stock has traded as high as 10.4X during the last 24 months. Yet, MU is trading above its two-year median of 5.3X and its 24-month low of 3.6X. Therefore, we can say that Micron stock presents solid value at the moment, but it has looked better.

 

 

Outlook & Earnings Trends

Looking ahead to Wednesday, Micron’s Q2 2019 revenue is projected to plummet 19.5% to hit $5.92 billion, based on our current Zacks Consensus Estimate. The company’s vital DRAM unit is expected to see its revenue fall roughly 23% from $5.21 billion to reach $4.03 billion. Meanwhile, MU’s overall third-quarter revenue is projected to tumble nearly 29%, with full-year revenue expected to fall by 16.7%.

Micron’s outlook appears even worse at the bottom end of the income statement. The firm’s adjusted quarterly earnings are projected to fall 38.7% from the prior-year quarter to $1.73 a share. Micron’s full-year 2019 earnings estimate is expected to drop over 37%, while fiscal 2020’s adjusted EPS figure is projected to come in 18.6% lower than our current year estimate.

Investors can also see that Micron’s consensus earnings estimates have plummeted for Q2, Q3, fiscal 2019, and 2020, over the course of the quarter.

 

 

Bottom Line

Micron’s negative earnings estimate revision trends help the company earn a Zacks Rank #4 (Sell) at the moment. And Micron’s top and bottom-line outlooks clearly appear rough. The company does present some solid value and MU stock has plenty of room to run before it comes close to hitting its 52-week high.

Nonetheless, those interested in Micron stock might want to wait until the company reports its actual Q2 fiscal 2019 financial results after the closing bell on Wednesday, in order to gauge market reaction and wait on any business updates.

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