The stock of memory chip manufacturer Micron Technology (NASDAQ: MU) is trading near the 12-month high of $32.96. An increase in the price of DRAM and NAND memory chips, due to robust demand, boosted the profits of the chipmaker, thereby leading to an appreciation in the stock price. However, there were reports that there is no longer a shortage of memory chips. That led to speculation that the stock would remain range-bound in the short-term. However, a Cleveland research report on Micron and the strong Q3 2017 results indicate that the stock would move up further as explained underneath.
The Boise, Idaho-based company reported third-quarter net sales of $5.57 billion, an increase from $2.898 billion recorded in the similar quarter last year. The company also swung to a profit of $1.647 billion in 3Q17, compared to a net loss of $215 million in the same period last year. On a per-share basis, Micron reported earnings of $1.40 in the April-June quarter, compared with a net loss of $0.21 last year.
Excluding stock-based compensation, asset impairment, acquisition, and restructuring charges, among others, Micron reported 3Q non-GAAP net income of $1.896 billion, or $1.62 per share, compared with a non-GAAP net loss of $29 million, or $0.03 per share, in the year-ago period. The Thomson Reuters Consensus estimate was earnings of $1.51 per share on revenues of $5.41 billion.
Micron’s cost reduction program coupled with favorable pricing enabled the company to surpass the earnings estimate of analysts. The company also reported higher sales volumes for NAND chips. Manufacturing costs remained stable compared with last year.
A Cleveland Research report on Micron states that the upbeat DRAM and NAND prices will enable the company to beat the earnings estimates for the rest of 2017 and through fiscal 2018. Cleveland also stated that it anticipates fiscal 2017 EPS to be $7 per share. The report also states that the investment research firm expects earnings of $2 per share until the middle of the next calendar year. That would surpass the Wall Street estimates by 30%.
On the basis of impressive 3Q17 earnings and strong demand for memory chips, Citigroup has issued a target price of $45 for the stock of Micron. Thus, fundamentals support an appreciation in the stock price of Micron.
The stock has broken the resistance level at 32, as shown in the image below. Both accumulation/distribution and money flow index indicator is rising, thereby confirming the bullishness in the scrip. Thus, it would be advisable to stay long in the counter, as of now.
We are planning to trade the probable uptrend by investing our surplus funds in a high or above option. We would look for a strike price close to $32 and choose a date around September 15th for the contract expiry.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
