(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

Micron Technology Inc. (MU) shares have soared over the past three years with the stock jumping 350%. But the stock has hit a bit of rough patch having fallen by about 20% from its recent highs in 2018, falling from $63.42 to its current price around $49.95. But options traders are betting shares are likely to rise by about 14% back to $56.70 by mid-May. 

Shares have fallen amid a wave of technology-sector selling and were walloped on April 5 after UBS initiated coverage on the stock with a sell rating and a $35 price. The rating and downgrade come in stark contrast to the average price target of $71.30, as analysts continue to raise Micron's earnings and revenue forecast, according to data from Ycharts. 

A 14% Rise

Options traders have been increasingly turning more bullish on Micron when examining the $50 and $55 strike price options set to expire on May 18. Both the puts and the calls at the $50 strike price have roughly 40,000 contracts of open interest, but the call options have been rising at a far faster pace since April 3 when compared to those of the puts. It suggests that traders have become more bullish on the stock over the short term. Additionally, there has been substantial betting on the calls at the $55 strike price, with open interest rising to about 25,000 contracts. For the $55 strike price option to be profitable, shares of the stock would need to increase to $56.70, a rise of 14.2%. 

(Trade Alert)

Rising Estimates

Analysts have been steadily raising their earnings and revenue outlook for Micron, and they see revenue rising by nearly 44%, while earnings are expected to increase by approximately 118% in 2018. Those estimates have been steadily revised higher since the start of the year, with earnings estimates rising by roughly 11% to $10.81 per share while revenue estimates have increased by 5.8% to $29.25 billion. 

MU Revenue Estimates for Current Fiscal Year Chart

MU Revenue Estimates for Current Fiscal Year data by YCharts

Headwinds

But the headwinds still exist for Micron because analysts do not see the significant earnings and revenue growth in 2018 carrying forward: Earnings are expected to decline nearly 10% in 2019 and approximately 19% in 2020, while revenue is expected to remain flat. Despite the rising estimates, analysts still do not see Micron overcoming a rise in operational expenses. 

MU Annual EPS Estimates Chart

MU Annual EPS Estimates data by YCharts

For now, a rise in Micron shares may only prove to be temporary—a trading bounce—versus a continuation of the long-term bull run. 

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 holdingsInformation 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.

 

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