Enjoy today’s gain — but know that Micron stock can be tricky to invest in.
Micron Technology (MU 3.05%) stock rose 1.5% through 10 a.m. ET Wednesday after the maker of computer memory (DRAM and NAND) received a note of support from investment bank Citigroup.
Citi reaffirmed its buy rating on Micron and reiterated its $175 price target, which may not sound so great. (Same old, same old.) But here’s the thing: Micron stock costs only $99 today.
And if Citi is right, it means Micron stock has more than 75% upside.
Why Citi likes Micron stock
Citi’s note highlights both positive and negative developments for Micron. On the downside, the analyst admits that some DRAM inventory has been building up in the PC supply chain. For this reason, Citi lowered its 2024 revenue forecast for Micron (but only by 1%, to $25.1 billion). The analyst also cut its earnings forecast by a more significant 7%, to $0.61 per share.
On the upside, DRAM prices are rising. Citi cut forecasts for fiscal 2025 but still sees $38 billion (not $39 billion) in Micron sales next year and profits of $9.89 per share — not $10.17.
And even $9.89 per share would be a fantastic improvement over what Citi sees Micron earning this year: It would represent growth of 1,520%.
Is Micron stock a buy?
How much is 15x earnings growth worth, considering Micron operates in the highly volatile and extremely cyclical semiconductors sector, where booms and busts in profits occur regularly? Citi thinks it’s worth about 15x earnings, according to a StreetInsider.com report covering the analyst’s note. Meanwhile, Micron stock today costs just over 11 times the profit that most analysts think Micron will earn in the next 12 months.
That doesn’t sound too expensive to me. But investors in Micron need to be aware that investing in this sector is extremely tricky. Just because Micron is unprofitable today (and it is) doesn’t mean it will still be unprofitable a year from now. But even if Micron is profitable next year, that doesn’t mean it will remain profitable a year after that.
Citigroup is an advertising partner of The Ascent, a Motley Fool company. Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
