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Micron's Guidance Was Disappointing, But Here's Why it Could Be a Buy

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Sure, Micron's (MU) guidance was disappointing, but taking a longer term view of the stock may not be a bad strategy. 

Micron shares were falling more than 10% to $43.76 a share Friday. The company beat Wall Street estimates on sales and earnings, but issued worse-than-expected earnings per share guidance for the first quarter of its fiscal year 2020. Micron forecast adjusted EPS of 46 cents, plus or minus 7 cents, below analyst estimates of 53 cents per share.

Investors are particularly sensitive to pricing trends in chip making, especially as memory chip makers specifically are working down excess inventory levels in an effort to keep supply in line with demand. 

As TheStreet's Tech Editor Nelson Wang put it, "DRAM pricing still is going to be challenged." 

But here's the positive side: 

"The company is expecting DRAM pricing to improve in 2020, so that should really help," Wang said. TheStreet's Tech Columnist and semiconductor expert Eric Jhonsa said "I think 2020 will look better. They're guiding for both bit supply growth to be less than bit demand growth, so that creates a favorable backdrop, so the supply and demand balance should be a bit better next year." 

Revenue and earnings growth is expected to be 20% and 107% respectively for calendar year 2021, according to analysts polled by FactSet. For 2022, revenue and earnings are expected to grow 14% and 47%. 

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Related: Jim Cramer: What Micron Says About Upcoming Earnings Season

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