Can Micron’s Stock Jump 40% Post The COVID-19 Crisis?

by Trefis Team
+22.80%
Upside
84.13
Market
103
Trefis
MU
Micron Technology
Rate   |   votes   |   Share

Micron’s (NASDAQ: MU) stock declined by about 18% between 8th March 2020 and 24th March 2020 (vs. an 18% decline in the S&P 500), and the stock is down almost 19% since January 31 after the WHO declared a global health emergency in light of the coronavirus spread (vs. about 27% decline in the S&P 500 since then).

Drawing lessons from the 2008 financial crisis, we see Micron’s stock declined from levels of around $11 in October 2007 (the pre-crisis peak) to levels of around $3 in March 2009 (as the markets bottomed out), implying Micron stock lost as much as 71% from its approximate pre-crisis peak. This marked a steeper drop than the broader S&P, which fell by as much as 51%.

Will Micron’s stock recover similarly from the coronavirus spread?

We compare the performance of Micron vis-à-vis the S&P 500 in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: How Did Micron Technology Stock Fare Compared With S&P 500?

  • Micron recovered strongly post the 2008 crisis, to levels of about $11 in early 2010, rising by a whopping 228% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period.
  • Overall, there have been two distinct trends driving the recent sell-off. Firstly, the increasing number of Coronavirus cases outside China is causing mounting concerns of a global economic slowdown. Secondly, crude oil prices plummeted by more than 20% after Saudi Arabia increased production.

Rationale Behind Stock Decline

  • Memory hardware stocks generally move in tandem with the broader market trend and economic growth trends.
  • With manufacturing activity slowing down, the demand for external and internal memory products from sectors such as mobile phones, consumer electronics, laptops and computers, etc has decreased significantly.
  • Lower prices and decreased shipments (due to fall in demand) is likely to put immense pressure on the company’s revenues in 2020, leading to a sharp drop in the company’s stock price.
  • We believe Micron’s H1 2020 results will confirm this reality with a drop in revenues.
  • If signs of coronavirus containment aren’t clear by the next 2 earnings timeframe, it’s likely Micron’s stock, along with the broader market, is going to see a continued drop when results confirm palpable reality.

Conclusion

While Micron’s stock has declined due to the Coronavirus/Oil Price War crisis, going by trends seen during the 2008 slowdown, it’s likely that it could bounce back strongly and potentially outperform as the crisis winds down. Based on the 2008 crisis comparison, Micron’s stock could potentially see a full recovery to pre-coronavirus crisis levels, implying a 40% upside post the crisis.

Potential for over 40% gains in Micron stock, and its timing, hinges on the broader containment of the coronavirus spread – our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes the same.

Further, our dashboard -28% Coronavirus crash vs 4 Historic crashes builds a more complete macro picture, and complements our analyses of Coronavirus impact on Micron’s stock.

The complete set of coronavirus impact and timing analyses is available here.

 

See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams

Rate   |   votes   |   Share

Comments

Name (Required)
Email (Required, but never displayed)
Be the first to comment!