A Big Catalyst for Micron Stock?
I’m not sure if you noticed, but volatile Micron Technology, Inc. (NASDAQ:MU) has been surging on the chart with MU stock up 87% since a 52-week low of $9.31 in January. Micron has an erratic trading history and the scope of this advance is puzzling.
With MU stock now approaching the $19.00 level encountered in October 2015, there is speculation swirling that Micron could see a takeover bid surface from a suitor with deep pockets, who would be willing to pay more than the current $18.0 billion market cap.
Chart courtesy of StockCharts.com
The issue with Micron stock is the poor execution at the company, despite some good memory technologies. Of course, crippling competition and price pressures in the memory segment—including DRAM, NAND, and NOR flash memory—is hurting MU stock growth.
Micron appears to have the right tools and products. Its solutions are found in a broad range of electronic devices including computers, mobile, storage, networking, and automotive.
Takeover May Be Best Scenario for Micron Stock
The rally in Micron stock is not supported by the underlying fundamentals and growth metrics.
Micron has beaten the consensus earnings per shares (EPS) in four straight quarters, with some support from Wall Street. There were six EPS upgrades in MU stock for this year during the past 30 days and seven upward revisions for 2017. (Source: “Micron Technology, Inc. (MU),” Yahoo! Finance, last accessed September 7, 2016.) While this implies that Wall Street is becoming more positive, the reality is that Micron will need to ramp up its business, which will be tough.
Since April, Micron stock has received upgrades from Susquehanna Bancshares Inc (NASDAQ:SUSQ) (“positive”), Robert W. Baird (“outperform”), and Raymond James Financial, Inc. (NYSE:RJF) (“strong buy”). Standpoint Research took the other side and cut MU stock to a “hold” rating. (Source: Ibid.)
The weak balance sheet of Micron with nearly $5.0 billion in net debt coupled with expected losses and a 24.30% revenue contraction this year should be a concern for investors. (Source: Ibid.)
The lackluster fundamentals make the run-up in Micron stock confusing, but perhaps the stock market is envisioning a big turnaround, which I wouldn’t bet on.
A more valid guess would be a takeover bid from some deep-pocketed company or private equity. Again, a deal for Micron stock would likely mean a small premium offered, as the company’s inconsistency would surely cap the size of the bid.
If no bid emerges for Micron stock, a glance at the chart shows a bullish golden cross on high relative strength, but expect MU stock to face resistance shortly at around $18.00 to $20.00. The current market action in Micron looks overextended in the absence of a takeover emerging.