Micron MU shares bounced back on Monday as part of the market-wide comeback that followed Wall Street’s worst week since the financial crisis. The question is should investors think about buying shares of the semiconductor firm amid coronavirus fears?
What’s Going On?
The Dow, the S&P 500, and the Nasdaq all plummeted into a correction last week as the coronavirus spread outside of China into South Korea, Italy, and many other countries around the world. Apple AAPL, Microsoft MSFT, Mastercard MA, and others have warned Wall Street that the economic slowdown in terms of production and consumption will impact their businesses.
Goldman Sachs GS last week predicted that “U.S. companies will generate no earnings growth in 2020.” The CDC has also called for U.S. businesses, schools, and people to prepare for the coronavirusto spread domestically. The U.S. death toll hit six as of late afternoon Monday, with the global total at over 3,000.
Micron is one of the largest makers of DRAM and NAND memory chips. Investors should know that DRAM chips are key components of PCs and servers, while NAND flash chips are crucial to smartphones, solid-state hard drives, and more.
MU has been hurt by pricing over the last year. And clearly a global economic downturn would be bad for Micron and other semiconductor firms, who are already impacted by larger business spending cycles.
Micron, along with much of the industry has been hit over the last 12 months by the cyclical nature of the chip market. With that said, pricing is expected to recover and CEO Sanjay Mehrotra said last quarter that the firm was “optimistic that Micron's fiscal second quarter will be the cyclical bottom for our financial performance.”
On Monday, Baird analyst Tristan Gerra upgraded Western Digital WDC, Seagate STX, and MU. The analyst upgraded Micron stock from “underperform” to “neutral.” “DRAM/NAND flash pricing positive outlooks remain unchanged despite current demand weakness in China, as supply chain is holding onto inventories in the face of supply disruptions and PCB DRAM module shortages,” Gerra wrote in a note.
“We expect memory pricing to remain very resilient throughout this year.”
The nearby chart helps investors understand MU’s revenue slide. Micron’s sales fell on a year-over-year basis in the trailing four quarters, with last quarter’s (Q1 fiscal 2020) revenue down 35%. We can also see that the Boise, Idaho-headquartered firm’s own outsized success and growth put it in tough-to-compare positions.
Meanwhile, MU shares climbed 3.9% during regular trading Monday to hit $54.59 a share. This puts it about 10% off its 52-week intraday highs from early February. And Micron stock is now up roughly 33% over the last year to crush its industry’s 16% average climb.
Micron’s PEG ratio currently sits at its industry’s average of 2.21, which marks a discount compared to Texas Instruments’ TXN 2.40. MU is also part of the Semiconductor Memory industry that ranks No. 1 out of our more than 250 Zacks industries.
Our current Zacks estimates calls for the company’s adjusted Q2 earnings to tumble 78% to $0.37 a share, on 20% lower revenue at $4.67 billion. MU’s bottom-line decline is expected to continue in Q3, but its sales growth is finally set to return.
Overall, the company’s full-year fiscal 2020 revenue is projected to fall 12.7% to $20.44 billion, with adjusted earnings expected to sink over 63% to $2.32 a share.
Peeking further ahead, Micron’s 2021 sales are projected to climb 22% above our current-year estimate to reach $24.94 billion. And its adjusted EPS figure is expected to surge 116% higher to hit $5.03 per share.
MU looks poised to return to growth next year, with the top-line comeback expected to begin in Q3. Micron is currently a Zacks Rank #1 (Strong Buy) stock that is set to report its second quarter 2020 financial results on March 25.
Some investors might want to hold off until after MU reports, or wait for it to provide any coronavirus-based updates. With that said, Micron appears to be a solid longer-term buy within the historically cyclical chip space.
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