Micron’s (MU) valuation has reached a level where it is simply too cheap to ignore given its fundamentals, says Goldman Sachs analyst James Schneider.
Schneider reiterated his $1,250 price target on the once-hot AI momentum trade. It assumes an increase of around 70% from current levels.
“We also believe the risk/reward ratio becomes more attractive for Neutral-rated Micron in light of the high likelihood of strong free cash flow in the coming quarters,” Schneider said.
Micron is currently moving closer to tangible book value, Schneider noted. When a stock trades below its tangible book value, investors value the company at a price lower than the estimated value of its assets after subtracting its liabilities and intangible assets.
In a sense, the market believes that the company’s physical and financial assets are worth more than the stock market value of the entire company.
This seems to border on an unwarranted disconnect, at least when considering Schneider’s work on the chip reader.
Micron’s stock has fallen 17% over the past month on concerns that a blue wave on Election Day could slow the development of AI infrastructure. This could have consequences for Micron’s memory chip orders.
The rout brought Micron’s forward price-to-earnings (P/E) ratio down to an almost laughable 4.2 times, according to data from Yahoo Finance AlphaSpace. Keep in mind that Micron is coming off a quarter of strong demand amid a memory chip shortage that is driving up prices.
The Street still expects Micron to grow earnings by at least 17% in its next fiscal year.
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