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

Micron Technology Inc.'s (MU) strong fiscal first quarter 2018 results have inspired the bulls after a stretch that saw Micron shares fall by nearly 20 percent from peak to trough. The results, which handsomely beat estimates, helped lift Micron's shares by about 4 percent on December 20.

Bullish Options Trades

Most importantly, heavy option volume and open interest indicate that Micron could rise as much as 14 percent to nearly $51 from around $44.75.

The technicals and fundamentals have also improved. As noted in an Investopedia article on December 15, Micron was facing further declines, based on a technical analysis. But Micron's latest earnings report changed the dynamics as fiscal first-quarter revenue came in nearly 6 percent higher than estimates at $6.8 billion, and as earnings beat estimates by almost 11 percent at $2.45, helping to lift profit margins. Additionally, the company delivered strong guidance for the fiscal second quarter, boosting consensus estimates by nearly 30 percent to $2.57 and revenue estimates by 14 percent to $6.963 billion for the fiscal second quarter. (See: Why Micron's 15% Decline May Be Just The Beginning)

Options Optimism

Options that are set to expire on January 19 and February 16 indicate the shares could rise to about $51, an increase of nearly 14 percent. A December 18 Investopedia story noted that options traders saw Micron shares rising to about $48. Now, the latest options trades indicate Micron could go higher. (See: Micron Is Poised To Jump On Earnings, Options Trades Indicate.)

Turning Technicals 

For now, the technical charts are signaling shares of Micron could see a short-term pullback to $44.00 as the stock fills the gap created by the strong results. But the longterm trend has turned, and the stock was able to retest support at $42. The stock has become bullish and now has a path towards resistance at $50. 

 

 

 

Improving Margins

From a fundamental standpoint, profit margins in the latest quarter expanded to 55 percent from 47 percent in the prior quarter, according to data from Ycharts. The chart below shows the correlation between margins and the stock price. Healthy margins are likely to help ease the fears some investors may have that margins may contract. 

MU Chart

MU data by YCharts

Investors should not forget that Micron declined sharply several week ago, showing that sentiment swings can make Micron extremely volatile. But the latest indicators from both the technical and options perspectives indicate this stock may see sizable gains.

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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