Why Is Micron (MU) Stock Slipping Today?

Shares of Micron Technology MU slumped nearly 5.5% in morning trading Thursday after UBS initiated coverage of the trendy stock with a sell rating. The analyst team, led by Timothy Arcuri, are apparently bearish on Micron due to “cyclical memory concerns and big estimate cuts.”

Arcuri argued that Micron’s supply chain has struggled to keep inventory growth on pace with revenue expansion over the four quarters, a phenomenon which has helped create a “very favorable cyclical backdrop” for the semiconductor business. However, the analyst feels this factor is rapidly waning and will soon become a headwind.

UBS also assigned a sell rating to chip behemoth Texas Instruments TXN. Meanwhile, the firm initiated coverage of three semiconductor plays—Broadcom AVGO, Marvel Technology MRVL, and KLA-Tencor KLAC—with buy ratings.

Arcuri’s concern that cyclical trends could eventually become headwinds is one that frequently looms above the semiconductor industry. Decades of progress in personal, business, and mobile computing have allowed analysts and investors to pick up on recurring factors that both drive growth and cause pullbacks.

However, those that are bullish on Micron believe that new secular trends are enough to outweigh these cyclical factors, and company management is working to shift the rhetoric by painting a new picture of its business.

“The dealer market today is very different from the PC-dominated market of the past,” said Micron CEO Sanjay Mehrotra in the company’s latest earnings report. “More specifically, memory is making possible applications such as AI and VR, and enabling new cloud-based business models which deliver a fundamental value far in excess of a price per bit.”

Memory remains a heavily-commoditized segment of the technology sector, thanks in large part to cyclical trends like those mentioned by Arcuri. But for those that believe in the power of these new secular trends, this means that Micron is trading at extremely attractive valuation levels.

For instance, MU is currently sporting a Forward P/E of just 5.2, which comes in at a significant discount to the average of 18.8 displayed by our broader “Computer and Technology” sector. Micron is also sporting an “A” grade for Value in our Style Scores system.

It is also worth noting that, despite Arcuri’s bearish sentiment, analysts have been largely optimistic about Micron over the past month. In fact, the company has witnessed nine positive revisions to its full-year EPS estimates within the last 30 days, lifting its Zacks Consensus Estimate by $0.48. This positive revision activity has earned the stock a Zacks Rank #1 (Strong Buy).

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