(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Micron Technology Inc. (MU) shares are breaking out, rising by over 6 percent, to over $52. The breakout comes as the stock cross a critical resistance level that stood at roughly $50. But the rise in the share price is more than just the technical trading patterns, as analysts have been steadily raising their estimates for the current quarter and the full year for the company, and it's all coming together helping to push the stock higher.
Analysts currently have an average price target of about $58.30, more than 12 percent higher than Micron's current stock price. The analysts' average price target has climbed by roughly 10 percent over the past three months from $53.
Analysts are looking for the company to show that earnings grew by nearly 190 percent to $2.61 and that revenue increased by almost 55 percent to $7.20 billion when chipmaker next reports results on March 22.
Shares of Micron have broken out today, with the stock price rising above $50, a level it has not seen in nearly two decades. The breakout could signal that the stock could continue to rise toward $58, the next significant resistance level, which happens to also coincide with the average analyst price target on the stock.
According to data from YCharts, analysts have raised their outlook for Micron for both the fiscal second-quarter and for the full year. Over the past 30 days, analysts have increased their earnings estimates by nearly 7 percent to $2.61 a share, while full-year 2018 forecasts have risen by roughly 6 percent to $10.31. At the current analyst earnings estimates for the full year 2018, earnings would climb by almost 108 percent versus last year.
Revenue estimates have also spiked for Micron over the past 30 days, by over 4 percent for the fiscal second quarter to $7.19 billion, while full-year forecast has risen by just over 3 percent to $28.56 billion. At the current estimates for the full-year, revenue would climb by 40.5 percent versus the prior year.
The significant projected increase in both revenue and earnings are positive for the company and the stock price. Perhaps what is even more important is a sign that analysts expect margins for Micron's business to expand, as earnings grow faster than revenue. Since May of 2016, gross margins have steadily expanded every quarter for the stock, rising to approximately 55 percent in the fiscal first quarter of 2018, from 17 percent in May of 2016, a vast improvement.
Based on the technical breakout and analysts' rising optimism about Micron, the stock may still have further to climb. But should those margins slip, sentiment could change very quickly because earnings are likely to follow. (See also: The Anatomy of Trading Breakouts.)
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.