Capitalize on Micron’s 24% Drop—Wall Street Eyes Major Upside

Key Points

• Micron stock has sold off as analysts at BNP Paribas decided to cut their price targets by half on oversupply concerns.
• Despite the bearish price action, others on Wall Street believe the stock could pose a recovery rally in the coming quarters.
• A steep discount to peers makes Micron stock a potential play to consider as a watchlist addition.

The stock market has had to watch some of its previous darlings in the technology sector underperform in the past couple of weeks; investors can find the industry’s latest victim in shares of Micron Technology Inc. NASDAQ: MU as the stock has traded down from its recent high made in August 2024. A 24.3% decline from that level would mean the stock trades at roughly 56% of its 52-week high.

Wall Street defines a bear market as a 20% or more sell-off from recent highs. So, Micron stock now fits the description of being in a steep bear market, something investors could take advantage of in the right environment. While Micron might be in the middle of a bear market, the rest of the semiconductor industry is not, as the VanEck Semiconductor ETF NASDAQ: SMH is still relatively intact by trading at 83% of its 52-week high.

Of course, markets had a reason to sell this stock. While some of these causes might be true and strong enough to keep the stock at this level for a while, there are also potential signs of a recovery brewing for this company and others in the semiconductor industry. First, investors should check in to see how Wall Street views the company today.

Micron Stock: Wall Street’s Latest Roundup and Analyst Insights

When stocks start showing markets a bit of bearish price action, analysts tend to avoid these names to protect their reputations and careers. The fact that analysts at Citigroup decided to reiterate their Buy rating for Micron stock speaks volumes about the sentiment despite the bearish price action.

However, there are also opposing views from those at BNP Paribas, who recently cut Micron's stock price target to less than half their previous view. Going from a $140 target down to just $67 would call for as much as a 24% downside from where the stock trades today.

Quoting their bear case, these analysts expect the entire industry to come into a state of oversupply, which will affect margins across the board. Recently, NVIDIA Co. NASDAQ: NVDA CEO Jensen Huang said there would be "tons and tons" of supply for their new chips but didn't mention much about the demand side.

Despite what BNP Paribas warned, Citigroup's valuation is set at a price target of $150 a share for Micron stock as of September 2024. To confirm these analysts' latest valuations, Micron stock would need to rally by as much as 68.5% from where it trades today, and that's where investors can begin to paint a potentially bullish picture.

Other Wall Street players decided to take a chance on Micron stock's potential recovery in the coming quarters, as up to $9 billion of institutional capital made its way into the stock over the past 12 months alone. The latest round of buying came from those at SS&H Financial Advisors, boosting their positions by 3.2% as of September 2024, netting their investment at $2.8 million today.

Other major Wall Street behemoths like the Vanguard Group and BlackRock have also increased their holdings in Micron stock by 1% and 2%, respectively, bringing their net positions to $13 billion and $12 billion each. Given these additions during the past quarter, investors should consider this willingness to buy despite a recent sell-off.

Last, investors can check where Wall Street's earnings per share (EPS) forecasts are for Micron stock. The company netted $0.62 in earnings, a figure analysts expect to jump higher by 75.8% in the next 12 months to reach $1.09 EPS.

Micron Stock's Discount Offers More Value Than Just the Price

Investors can look beyond the stock’s price to determine where the steep discount in Micron Technologies comes from. On a price-to-book (P/B) basis, this company is valued at 2.4x today, while peers like NVIDIA trade at a much higher 50.4x multiple today.

It seems that some in the industry are starting to feel the pain of building inventory ahead of time, as Intel Co. NASDAQ: INTC has also currently traded down to 42% of its 52-week high. Knowing that Micron’s issues are not trapped in a vacuum but rather part of a larger industry-wide problem, investors can start to consider a potential dip buy.

Micron’s financials could be the ultimate guide for investors to confirm a bull case, particularly regarding inventory and potential cash flow issues. The latest quarterly results show that Micron’s operating cash flows rose from $1.3 billion last year to $5.1 billion this year, mainly driven by inventory values.

Last year, Micron expanded its inventories by roughly $3.6 billion, while this year, it was only expanded by $125 million. This means they are getting ahead of the curve and tightening their supply chain before the industry takes a potential downturn.

Be that as it may, the worst might be behind Micron stock, as management seems to be reacting in all the right ways. Any further volatility in the industry might already be priced into Micron stock, making it a somewhat safer pick for tomorrow.