Nomura Analysts Comment on Micron Technology, Inc. (MU) and Palo Alto Networks, Inc. (PANW) Following Analyst Day and Ahead of Earnings

Nomura analysts weighed in today on chip maker Micron Technology, Inc. (NASDAQ:MU) and security firm Palo Alto Networks, Inc. (NYSE:PANW), as Micron provided updates at its Winter Analyst Day, and Palo Alto faces high expectations for fourth-quarter earnings release next week.

Micron Technology, Inc.

Nomura analyst Romit Shah reiterated a Neutral rating on Micron Technology, while lowering the price target to $12 (from $15), as the “cost decline outlook will not provide an offset to eroding ASPs, thereby adding incremental risk to a margin/EPS infection through the current down-cycle.”

Shah expects DRAM (Dynamic random-access memory) market conditions to deteriorate through mid 16. Furthermore, Shah comments that Micron’s CapEx is unchanged at $5 billion across DRAM, NAND, tech, and product enablement. Despite Micron’s strong capital commitment in DRAM, Shah believes that there could be greater “flexibility” in 3D NAND, should the markets continue their negative spiral. He continues that DRAM and NAND supply expectations “may be too high” factoring in slower growth in all markets including PCs, smartphones, and servers. Shas comments that the current price reflects the conditions for the DRAM market.

Shah believes Micron costs will decrease in the mid to high teens % this year, however the industry ASPs “are likely to fall 20-25% y/y suggesting further margin erosion in 2016.” Micron however remains focused on 3D NAND ramp and widening their portfolio to TLC. Shah concludes by reducing CY16 EPS to $0.62 (from $1.95) and introduce CY17 EPS of $1.12.

According to TipRanks which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Romit Shah has a yearly average return of 6.4% and a 50% success rate. Shah is ranked #323 out of 3671 analysts.

Palo Alto Networks, Inc.

Analyst Frederick Grieb of Nomura expects to see another strong quarter as Palo Alto is set to release its F2Q’16 earnings next Thursday. The stock is down 32% since F1Q’15 earnings, although Grieb claims the company remains “one of the stronger share gainers in its market.” Despite its underperformance Grieb believes that the customer focus on cyber security as well as the company’s strong technology will help Palo Alto gain market share.

Looking forward in 2016, during the quarter, Grieb writes that according to a survey, 56% of resellers were running ahead of plan with Palo Alto sales, and average reseller was 2.2% ahead of plan. These figures lead Grieb to expect revenue of $324.4 million, slightly better than Wall Street’s 2Q’16 revenue expectation of $318.3 million. Additionally, Grieb modeled 2Q’16 billings of $390.2 million, which represents a yoy growth of 38% compared to 51% yoy growth in 2Q’15.

Grieb maintained a Buy rating on Palo Alto, with a price target of $200, as he continues to remain bullish given the highly ranked company’s product offerings and ability to gain market share.

According to TipRanks which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Frederick Grieb has a yearly average return of 7.5% and a 35% success rate. Grieb is ranked #549 out of 3671 analysts.


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