What happened
Micron Technology (MU 2.92%) stock went on a tear this week, rising 8.8% through Thursday's close -- and looking set to add another 4% or even 5% today. Already, here at the 3:15 p.m. EST mark, Micron stock is up 4.8%.
Part of the reason for the stock's strong performance is Wall Street, where three separate analysts raised their price targets on Wednesday, to as high as $75 a share, and a fourth just put in an $85 target this morning. That's part of the reason, but it's not the whole reason Micron shares are going up.
Image source: Getty Images.
So what
This morning, analysts at Argus Research upped their target for Micron from $65 a share to $85, citing recent increases in revenue, profit margin, and earnings forecasts. Argus' update echoes Micron's own on Tuesday, in which the computer memory maker predicted it will report Q1 2021 sales of at least $5.7 billion (versus Wall Street's expectation of $5.25 billion) and earn "adjusted" profits of $0.69 to $0.73 per share on those sales -- versus a Street expectation of just $0.48.
Adding to the "good" news is a curious development. Yesterday, it was reported that a brief power outage at Micron's DRAM memory factory in Taiwan might actually be a positive development for Micron (and other memory makers), inasmuch as any disruption in supply could push up prices for DRAM in a supply constrained environment.
Now what
I wouldn't overstate the effect of the disruption, however. TheFly.com is reporting that it lasted "for over an hour," but probably not much longer than that. It's highly unlikely such a short hiccup in production could affect Micron's long-term prospects as an investment (unless, for example, it raises uncertainty about the potential for more such outages in the future. I suppose that could have some effect).
On the other hand, the improved Q1 forecast is significant. If Micron succeeds in growing its sales 11% to $5.7 billion in sales this quarter, versus the mere 2% sales growth Wall Street had predicted, and if Micron furthermore grows its gross margins to 30%, as it has also predicted, then profits could end up rising as much as 52% year over year -- versus being merely flat year over year.
And 0% growth versus 52% growth -- that's the difference between saying Micron stock is overvalued at 27 times earnings and saying it's a screaming buy.
