1 No-Brainer Stock With 132% Upside, According to Wall Street

Table of Contents Hitting all the right notesPowerhouse financial performanceThe stock is a great value

When Wall Street analysts reach an overwhelming consensus on a stock, it can be worthwhile paying attention. While they’re not always right, it can be a good indication that a company’s fundamentals are on solid ground.

Sometimes favorable developments within a company’s industry will prompt analysts to increase their expectations. But how the company reacts to those opportunities can be the difference between a great-performing stock and a poor one. For example, as the world grapples with a pandemic-driven semiconductor shortage, many chipmakers have experienced transformational growth and soaring profits.

Memory chipmaker Micron Technology (NASDAQ:MU) is no exception. It has a consensus buy rating among Wall Street firms, and one, in particular, thinks the stock’s price could rise by 132%. 

Image source: Getty Images.

Hitting all the right notes

With goods and services advancing so quickly in the digital world, the hunger for data has created an entire industry that is thriving in the background. 

It’s known as the data center, and it’s where organizations house crucial IT infrastructure, computing services, and data. Take social media company Facebook (NASDAQ:FB), for example, which is responsible for managing the data of over 2.9 billion monthly users. Most companies maintain a data center on-premise to fit their needs, but cloud technology has allowed for hybrid models in which some needs can be outsourced to a third party, saving costs and the hassle of managing them. 

This industry is now the largest source of demand for semiconductors related to memory and storage, which is exactly what Micron specializes in. 

The company’s chip business for consumer products is also strong. The pandemic triggered a work-from-home trend for millions of employees, and at this stage, some of them will likely never return to the office full time. That means greater demand for personal computers and other devices that feature Micron’s memory and storage products.

But investors should watch the automotive segment closely. Micron just booked its fourth consecutive quarter of record growth in that area, and as cars grow more intelligent (and more electrified), it presents an enormous opportunity for the company. 

Powerhouse financial performance

Prior to the pandemic, Micron was struggling to find growth. In fact, after a blockbuster 2018, it delivered a revenue decline of more than 20% the following year. It was the victim of broader difficulties in the semiconductor industry, particularly the onset of powerful competition.

But the landscape has changed. Micron’s chips are more important than ever, and it has a plethora of tailwinds behind it. New 5G-enabled smartphones, for example, require more DRAM memory, and 5G adoption will likely become as prevalent as its 3G and 4G predecessors over time. 

There is no doubt, however, that the recent dynamic of soaring semiconductor demand combined with a shortage has benefited Micron.

Metric

Fiscal 2020

Fiscal 2021

Fiscal 2022 (Estimate)

CAGR

Revenue

$21.4 billion

$27.7 billion

$32.9 billion

24%

Earnings per share

$2.37

$5.14

$8.96

94%

Data source: Micron, Yahoo! Finance. CAGR = compound annual growth rate.

In the fiscal year 2021, which just ended, Micron’s gross margin rose to 37.6% from 30.6% the prior year. That helped bolster the company’s bottom line, more than doubling its earnings per share. 

It’s part of the basis for Wall Street firm Rosenblatt Securities’ $165 share price target for Micron, which implies 132% upside in the next 12 to 18 months. The firm notes that because gross margins have remained strong, robust demand for the company’s products will likely continue in the new fiscal year.

The stock is a great value

The iShares Semiconductor ETF (NASDAQ:SOXX), which is representative of the broader semiconductor industry, trades at a price-to-earnings multiple of 32. 

Based on Micron’s $5.14 in fiscal 2021 EPS and a current share price of $71, its stock trades at a multiple of 13.8 — more than 57% lower than the basket of its peers in the iShares Semiconductor ETF.

Using a forward multiple makes the stock look even cheaper. Micron trades at just 7.9 times its fiscal 2022 earnings estimate, which implies the stock would need to rise by 75% just to maintain its current P/E ratio.

But most importantly, Wall Street has come to the overwhelming consensus that Micron is a buy. Rosenblatt Securities might have the street-high target of $165, but dozens of other analysts also think the stock is cheap right now.

With strong revenue growth, soaring EPS, and an industry that will only increase in importance over time, this stock sure feels like a no-brainer. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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