Micron Technology (MU) stock is up 133% from its March 30 low of $321.80, but MU could still be cheap based on its projected free cash flow. Moreover, analysts have raised their price targets. One play is to short out-of-the-money (OTM) put options.

MU closed at $751.00 per share on Friday, May 22, down from a recent peak of $803.63 on May 13. But it could be worth almost 13% more at almost $844, as this article will show.

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Why Micron's FCF Could Spike

On March 18, Micron posted very strong earnings and free cash flow (FCF) fiscal Q2 margins (ending Feb. 28), as I discussed in my April 14 Barchart article, “Analysts Hike Their Micron Estimates, Pushing MU Stock Price Targets Higher.”

For example, its first-half adjusted FCF margin was 28.83% (i.e., $10.8b/$37.5b revenue), and its Q2 adj. FCF margin was 28.87% (i.e., $6.889b/$23.86b revenue). This can be seen in the table Micron provided:

We can use these to forecast FCF.

For example, analysts now project revenue next year will be $172.76 billion. So, using an average 28.85% FCF margin, its FCF could almost reach $50 billion:

$172.76 billion revenue x 0.2885 = $49.84 billion FCF

Last quarter, Micron was on a run-rate FCF of just $27.6 billion (i.e., $6.6889 billion Q1 adj. FCF x 4). In other words, we can reasonably expect Micron's adj. FCF to rise 82.5% next year.

As a result, we can expect its price target to be substantially higher.

MU Price Targets

For example, assuming the market values this FCF estimate at a 5.0% FCF yield, i.e., 20x FCF. That would give Micron a fair value of almost $1 trillion:

$49.84b adj. FCF 2027 x 20 = $996.8 billion

That is +17.7% higher than Micron's market cap today (i.e., $846.92 billion, according to Yahoo! Finance).

But, just to be conservative, let's assume the market's lower valuation range is a 5.5% FCF yield, i.e., an 18.18x multiple (i.e., 1/0.055 = 18.18x):

$49.84b x 18.18 = $906.1 billion

That's 7% higher than today's price. As a result, MU's price target (PT) range is between 7% to 17.7%, or +12.35% higher, on average:

$751.00 x 1.1235 = $843.75 per share PT

This is higher than other analysts' PTs. For example, Yahoo! Finance's survey of 44 analysts shows an average PT of $613.22. However, that is up from $551.40 on May 5, when I last wrote about MU stock. In other words, Street analysts are playing catch-up.