For starters, we have the company’s numbers which recently offered an unbiased look at the internal engine. These were released after the bell rang to end last Wednesday’s session, and for the most part were positive. Revenue was up 36% on the year and ahead of analyst expectations, as was non-GAAP EPS. Gross margin also came in hot at 42% versus a print of 32% from the same quarter time last year. Operating cash flow was up 76% on the year while looking ahead forward guidance for next quarter’s revenue was higher than the consensus. So far, so good.
CEO Sanjay Mehrotra struck an understandably positive tone with the report when he said:
But for all that optimism though, shares still gapped down on Thursday’s open and continued falling into the weekend. This was in stark contrast to the NASDAQ index which found itself at a new all-time high on Friday afternoon, while Micron is essentially flat for 2021.
Summit Insights were one of the first to see beyond the front page numbers when they came out with a downgrade to Micron shares on Thursday morning. They moved them from a Buy to a Hold rating on the basis that the company’s demand and supply dynamics are close to peaking and that that tailwind will shortly dissipate. In a note to clients, they noted the peak is tied to “seasonal build coupled with many of its end customers changing their inventory management tactics from just-in-time to just-in-case.”
This move was the exact opposite of what the folks over at BMO did the previous day. On the basis that the constrained chip supply environment is expected to continue into 2022, they went so far as to upgrade Micron shares from Market Perform to Outperform while boosting their price target by more than 20%. That now sits at $110 which implies there’s juicy upside to be had from current prices in the realm of 40%. Were shares to hit $110 in the coming months it would mean they’ve hit multiple fresh all time highs along the way, and would have put the sluggish start to this year well behind them.
For those of us attempting to make sense of the news, the views, and the ticker tape, it’s a lot to try and process. But on the whole, there’s more to like than dislike about Micron right now. Whatever about their demand supply dynamics, the company is growing faster than expected with impressive margins driving a strong cash flow. Their shares have been stagnant all year while their price-to-earnings ratio is barely above 20, which in and of itself acts as a hedge. If any volatility returns to equities in the near-term, it’s those with price-to-earnings ratios in the high double digit and triple digits that will be hurt the most.
Indeed it could almost be argued that the low ratio means they’re almost more of value stock than a growth stock but we know this is not the case. This is an OG tech company that’s been around the block a few times and is going nowhere. With tech stocks starting to come back into favor, it’s not unreasonable to think Micron will find a bid by association alone, with plenty of fundamental reasons for a fresh independent rally to take off too.