Micron Technology Stock Headed Toward Early-2017 Levels Of $25?!

by Trefis Team
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Despite a ~10% decline in Micron’s (NASDAQ: MU) stock since the beginning of this year, as the spread of the novel Coronavirus rattled the stock markets and the broader economy, at the current price of $48 per share, we believe Micron has a significant downside if there are no signs of abatement of the crisis in May 2020. The key is Micron’s stock is still about 17% higher than it was at the beginning of 2018, a little over 2 years ago. We estimate that Micron’s stock price could decline to levels of around $25 (worst-case scenario) if its revenues fall by 20% vs. FY’19, and its valuation multiple drops to 1.5x, a little over the 2018 low of 1.2x. Below, we summarize this possible downside case for Micron, which is detailed in our interactive dashboard analysis Micron Technology Downside: How Low Can Micron Technology Stock Go?

So what’s the likely trigger and timing to this downside?

  • The global spread of coronavirus has led to slowdown in industrial and economic activity, thus affecting consumer spending power. Lower consumption will lead to lower demand for laptops and computers, leading to lower demand for external and internal memory devices. This would lead to a drop in demand for Micron’s DRAM and NAND memory manufacturing products. We believe Micron’s Q3 ’20 results in June will confirm the hit to its revenue, with the management having already warned that the next few quarters will be difficult.
  • Specifically, we believe the full-year revenue expectations formed by the market may be closer to $18.7 billion, about 20% lower than its 2019 revenue of $23.4 billion, and nearly 40% lower than the 2018 revenue of $30.4 billion.
  • The market has seen this coming, and Micron’s P/S multiple, which has already shrunk to around 2.3x, could likely drop to 1.5x, which would still be slightly higher than the 2018 low of 1.2x.
  • This, in turn, would translate into a stock price drop of almost 50%, close to $25.

Will such a drop be justified? Absolutely not. However, investors who are first out the door in a panic selling situation take a smaller hit to their portfolio.

The actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

We do believe these trends are likely to reverse in later quarters of 2020, and as the Coronavirus crisis is tamed during late Q2, higher revenue and earnings expectations will replace the dire scenarios that are easily imagined during difficult times.

Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture. It complements our analyses of the coronavirus outbreak’s impact on a diverse set of companies. The complete set of coronavirus impact and timing analyses is available here.

You can see how Covid-19 could affect Micron’s computing peripherals’ peer Seagate, in our dashboard Seagate Downside: How Low Can Seagate Go?

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