Micron

MU

shares have skyrocketed 65% in the last three months to hit new highs ahead of its Q1 FY21 earnings release that’s due out after the closing bell on Thursday, January 7.

Cyclical Market Comeback…

Micron is one of the largest makers of DRAM and NAND memory chips in the world. Investors should know that Micron is heavily impacted by memory prices, which means Wall Street often treats the stock more like a commodity than most companies within the historically cyclical semiconductor space. And MU had been hurt by pricing for over a year.

DRAM chips are key components within PCs and servers. Meanwhile, NAND flash chips are crucial to smartphones and solid-state hard drives. And the industry saw pricing power and demand return after the firm hit its cyclical bottom in the first quarter of last year.

The memory chip firm returned to growth in Q3, with sales up 14% and fourth quarter revenue up 24%. The Boise, Idaho-headquartered firm topped our Q4 estimates, with its DRAM unit, which accounts for around two-thirds of its business, up nearly 30%. CEO Sanjay Mehrotra said at the time that demand from 5G, cloud computing, automotive, and elsewhere will drive growth in 2021.

What Else…

Micron stock has crushed the broader semiconductor space over the last five years, up 440% vs. 240%. This performance includes a rough several years. And the nearby chart shows that it started to bounce back in the summer of 2020. MU has surged 80% since mid-August to match Tesla

TSLA

and crush Nvidia

NVDA

and Apple

AAPL

.

Micron’s run has stretched its valuation to its highest levels in years in terms of forward sales at 3.2X. That said, given the memory space’s commodity-like standing, this still marks a solid discount to the industry’s 4.9X average.

Our current Zacks estimates call for MU’s adjusted Q1 FY21 earnings to surge 48% to $0.71 per share on 11.4% stronger revenue that would see it reach $5.73 billion. Meanwhile, Micron’s FY21 revenue is set to jump 13% to $24.2 billion, with FY22 projected to climb another 23% higher. Better still, MU’s adjusted earnings are projected to surge by 29% and 85%, respectively over this stretch.

Bottom Line

Micron’s bottom-line outlook has improved in a big way recently to help it land a Zacks Rank #1 (Strong Buy) right now. MU popped roughly 4% again on Tuesday to reach new highs heading into its Q1 earnings release.

Therefore, some investors might want to wait for the stock to cool off. Yet, MU’s overall outlook appears strong and it might be able to continue to run in 2021, even if it faces some near-term selling pressure.

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