Analysts Are Clipping Price Targets on Applied Optoelectronics Inc (AAOI) and Micron Technology, Inc. (MU); Here’s Why

Brian Alger fears rocky AAOI investor sentiment; Betsy Van Hees anticipates EPS dilution in wings for MU.


Applied Optoelectronics Could Rebound Next Year

Applied Optoelectronics Inc (NASDAQ:AAOI) is on a steep downward turn of 20% on back of bad news the fiber optics maker had to share with investors yesterday: a pre-announcement that third quarter results are going to meaningfully underperform previous expectations. Revenue is going to see a roughly 84% stinging dip and rumor has it that this miss has heavyweight customer Amazon’s name all over it.

Roth Capital analyst Brian Alger believes this will translate to shaken and stirred investor confidence at risk, wagering, “While management believes that no market share has been lost, we believe investors will remain skeptical until there is evidence of 100G replacing the 40G revenues.”

Though Applied knew Amazon would take a quarterly step down, the fiber optics maker just was not expecting the backpedal would be such a dramatic one: “In the initial guidance for the September quarter, AOI had articulated that Amazon was expected to be lower Q/Q due to the transition from 40G to 100G, however the decline was substantially greater than the company was prepared for.”

Overall, “Prior to the announcement, there was already strong debate as to AOI’s ability to maintain share versus mounting competition. Thursday’s announcement will only raise the level of doubt, in our opinion. We have adjusted our forecasts to reflect this greater skepticism. If AOI’s management is correct, 2018 could see a very substantial rebound and meaningfully higher revenues than our revised model now implies. However, without better visibility into Amazon and other hyperscale actual deployment plans, we believe investors will be prudently cautious,” worries Ager.

In reaction to the disappointing pre-announcement, the analyst maintains a Buy rating on AAOI while cutting the price target from $90 to $70, which represents a 47% increase from where the stock is currently trading.

Wall Street is mostly in this tech player’s corner, as TipRanks analytics reveal AAOI as a Buy. Out of 9 analysts polled by TipRanks in the last 3 months, 7 are bullish on Applied stock while 2 remain bearish. With a return potential of nearly 84%, the stock’s consensus target price stands at $85.75.AAOI analyst ratings chart

Micron Still in Good Shape for Fiscal 2018

Though Micron Technology, Inc. (NASDAQ:MU) shares experienced a 2% pullback following word that the chip giant would be boosting the offering of its common stock from $1.0 to $1.2 billion, selling 29.3 million shares at a cost of $41 per share, top analyst Betsy Van Hees at Loop Capital is mostly confident on the company’s decision. With most of the proceeds going to debt repayment, allowing Micron to utilize $476 million of proceeds to redeem $438 million of its 7.5% senior secured notes due in six years, along with acrued-meets-unpaid interest, the strategy here is one of debt lessening.

As such, the analyst advises “investors with a higher risk/reward tolerance” to invest in the chip giant, reiterating a Buy rating on shares of MU while dialing the price target down a notch from $48 to $47, which implies a 15% increase from where the stock is currently trading.

Hees believes the offering is an encouraging move by Micron as well as “a step in the right direction to deleveraging the balance sheet,” underscoring: “While we estimate the offering will be dilutive to our F2018 and F2019 pro forma EPS estimates, we expect the dilution will be somewhat offset by the acceleration of debt repayments. We continue to forecast memory supply/demand to come into balance in the 2H of F2018. We expect this to be a soft landing and believe MU’s cost downs will be able to outpace ASP declines. We believe this will be a tailwind bolstered by strong demand trends from mobile handsets, servers, and SSDs driving strong YoY earnings and revenue growth in F2018. We view the stock offering, reduction of debt, and strengthening of the balance sheet as considerable positives and maintain our Buy rating.”

Betsy Van Hees has a very good TipRanks score with a 74% success rate and a high ranking of #92 out of 4,698 analysts. Hees realizes 24.7% in her annual returns. When recommending MU, Hees garners 79.7% in average profits on the stock.

Voices on the Street predominantly show the chip giant to be one of the strongest pickTipRanks analytics exhibit MU as a Strong Buy. Based on 23 analysts polled by TipRanks in the last 3 months, 21 rate a Buy on Micron stock while 2 maintain a Hold. The 12-month average price target stands at $50.05, marking a nearly 23% upside from where the stock is currently trading.