Strong Q3 ’21 Earnings Could Help Micron Technology Stock Gain 20%

MU: Micron Technology logo
Micron Technology

Despite an almost 2.4x rise from its low in March 2020, at the current price of $80 per share, we believe Micron Technology stock (NASDAQ: MU) has further upside potential. Micron stock rose from $34 in March 2020 to $80 currently, while the S&P increased by around 90% from its lows. Further, the stock is up almost 40% from the level it was at before the pandemic. However, we believe that Micron stock could rise around 20% to regain its April 2021 high of $96, driven by expectations of steady, continuing demand growth and strong Q3 2021 results. Our dashboard What Factors Drove 153% Change In Micron Technology Stock Between 2018 And Now? has the underlying numbers behind our thinking.

The stock price rise since 2018-end came despite a 16% drop in revenue from $30.4 billion in FY 2018 to $25.5 billion over the last 12 months (Micron’s fiscal year ends in August). Net margins dropped from 46.5% to 16.2% over this period, as a drop in ASPs led to a drop in gross margins. Despite a 3% drop in outstanding share count, EPS dropped 70% from $12.27 in 2018 to $3.69 on an LTM (last twelve months) basis.

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Meanwhile, Micron’s P/E (price-to-earnings) multiple rose from 3x in 2018 to 31x by 2020 end, as the semiconductor supply glut cleared out, implying a rise in demand. The multiple has since pulled back to 22x currently, but we believe that the company’s P/E ratio has the potential to increase more in the near term on expectations of continuing demand growth and a favorable shareholder return policy, thus driving the stock price higher.

Where Is The Stock Headed?

The global spread of coronavirus and the resulting lockdowns have led to a rise in online activity as more and more people have started working from home. With streaming services seeing a surge in demand and people relying more and more on cloud storage, demand for physical storage devices has taken a hit. However, enterprise memory demand is rising, and this has led to a rise in overall memory device demand. This is evident from Micron’s Q3 2021 results, where revenues came in at $7.4 billion, a more than 35% jump from $5.4 billion in Q3 2020. COGS and other operating expenses rose at a much slower rate, and this helped drive operating margins from 16.3% to 24.2%, a strong 1.5x jump. This helped drive a more than 2x rise in net income from $803 million to $1.74 billion over this period.

Further, for the first 9 months of FY 2021, revenue stands at $19.4 billion, up from $15.4 billion for the same period in FY ’20. Operating income has seen a significant jump from $1.85 billion to $3.3 billion over this period, which is a strong indicator of the rise in demand and selling prices.

Further, with the lockdowns being lifted and vaccines being administered globally, we believe the company will continue seeing strong revenue growth in the medium term, and if Micron Technology continues to successfully control expenses, profitability could rise further in the near to medium term. This will raise investor expectations, driving up the company’s P/E multiple. We believe that Micron stock can rise around 20% from current levels, to regain its recent highs of around $96.

While Micron Technology stock may move higher, it is helpful to know how its peers stack up. Micron Technology Stock Comparison With Peers summarizes how Micron Technology compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.


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