If you’ve been paying attention the last few weeks you’ve no doubt heard some of my bullish calls on today’s Bull of the Day Micron (MU – Free Report) . Heading into the last earnings report I gave a bullish call spread trade for viewers on Bloomberg and my Zacks Live Trader service. The trade was a long January 20th $20.50/22 Call Spread that ended being fully in the money following the huge move on earnings.
Micron Technology, Inc. provides semiconductor systems worldwide. The company operates through four segments: Compute and Networking Business Unit, Storage Business Unit, Mobile Business Unit, and Embedded Business Unit. It offers DDR3 and DDR4 DRAM products for computers, servers, networking devices, communications equipment, consumer electronics, automotive, and industrial applications; mobile low-power DRAM products for smartphones, tablets, automotive, laptop computers, and other mobile consumer device applications.
DRAM prices are determined much like other commodities. There is a heavy reliance on supply and demand. As a result, prices are susceptible to huge spikes and harrowing drops. For example, a big manufacturer like Samsung having a recall on their phones will create shocks that impact DRAM prices in a negative fashion. Last year DRAM prices crashed and dragged down DRAM manufacturing stocks. That’s why you saw Micron drop from the mid-$30s to the single digits.
Along with depressed DRAM prices, analysts dropped their earnings estimates for Micron and other companies in the same industry. The good news is that trend has reversed and now there is a very bullish trend developing in DRAM pricing. As a result, analysts are aggressively increasing their earnings estimates for Micron.
Recently analysts have increased their earnings estimates for the current quarter, next quarter, current year and next year. The most drastic move can be seen in the current quarter’s numbers where we’ve seen our Zacks Consensus Estimate move from 14 cents to 45 cents for the current quarter. This aggressive movement has also pushed up the current year consensus from 75 cents to $1.76.
You can see the two megatrends in Micron over the last couple of years. The stock troughed along with DRAM pricing earlier this year. A retest of the lows in May under $10 preceded a surge that’s taken shares to $23.26 after a great earnings report had the stock gap up from $20.58. Shares are overbought here in the short term with the commodity channel index over 200.
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