Micron Technology (MU) stock is now close to fair value, as analysts have been raising their revenue forecasts and price targets. One of the best plays now is to sell short out-of-the-money puts, given their very high premiums. For example, short 2 weeks out MU puts with 5% below today's price yield 7.0%.
MU closed down 1.4% on Friday, June 12, at $981.61. That's off its recent peak of $1,079.57 on June 3, but could be the quiet before the storm. Micron is expected to release its fiscal earnings on June 24.
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MU stock - last 3 months - Barchart - June 12 I discussed Micron's fair value in two recent Barchart articles, including this one on June 5, “Has Micron Stock Peaked Here? Its Future Valuation Metric May Surprise the Market,” and another on May 24, “Micron Stock is Up over 133% From Its Lows - But Is MU Still Undervalued?”
Since the last article, analysts have hiked their revenue forecasts. This allows me to reset the underlying fair value and price target for Micron stock.
New MU Stock Price Targets
In my last article, I estimated MU was worth $910.80, based on analysts' revenue forecasts of $176.41 billion for the FY ending August 2027. But now analysts have raised this estimate to $183.62 billion.
As a result, using a 29% FCF margin assumption, as last time and slightly over its first half FY 2026 margin of 28.83%, FCF could rise to:
$183.62b x 0.29 = $53.25 billion FCF for FY 27
Then, using a 5.0% FCF yield metric, Micron's fair market value (FMV) would be:
$53.25 billion / 0.05 = $1,065 billion FMV
That is only 3.78% below its present market cap of $1,107 billion, as calculated by Yahoo! Finance. Therefore, my revised price target (PT) is $944.31 per share, i.e., 96.2% of Friday's close:
$981.62 x .0962 = $944.31 p/sh PT
That is up 3.7% from my prior PT of $910.80.
Analysts Have Significantly Raised Their PTs
Other analysts are playing catch-up with their recommendations and have significantly hiked their PTs. For example, since my last article, Yahoo! Finance's survey now shows an average PT of $828.72. That's up 12% from $739.47 a week ago on June 5.
Similarly, Barchart's mean analyst survey PT is now $872.77, up an amazing +18% from $739.34 last Friday.
Moreover, AnaChart also shows a quite dramatic hike in its average PT. AnaChart tends to cover more recent analyst write-ups than other surveys, so this could be expected.
Last week, the AnaChart average was $631.65, but this week it's $756.22. That's a one-week rise of +19.74% in analysts' average price targets.
If this keeps up, their PTs will likely rise close to today's price, as my price target.
The bottom line is that MU stock could be close to fair value here. However, all bets are off once Micron releases its Q3 earnings on June 24.
As a result, one conservative play is to sell short out-of-the-money (OTM) puts in nearby expiry periods. That way, an investor can gain extra income while waiting to set a potential lower buy-in price.
Shorting 2-Week OTM MU Puts
For example, the $935.00 strike price put option expiring June 26 shows a midpoint premium of $65.45. That strike price is 4.75% below Friday's close of $981.61, but the expiration is 2 days after its upcoming earnings release.
MU puts expiring June 26 - Barchart - As of June 12 However, for the next two weeks, that provides an investor with two benefits. First, the 2-week short-put yield play is very high:
$65.45 / $935.00 = 0.070 = 7% yield for 2 weeks
That is an extremely attractive yield. It's the same as buying MU stock and seeing it rise to $1,050.32 per share (i.e., $981.61 x 1.07).
Second, it allows an investor to have a potentially lower buy-in point. That assumes MU falls to MU or lower by June 26:
$935.00 - $65.45 (income already received)= $869.55 breakeven
That is an attractive potential buy-in point for value investors, especially compared to my higher PT. For example, my $944.31 PT is 8.6% over this lower breakeven point.
The bottom line is that shorting OTM MU put options over the next 2 weeks is an attractive way to play MU.
On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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