Micron (MU) Earnings Are Coming: Analyst Lowers Revenue Estimate, But Remains Bullish on the Stock


Tomorrow’s market close will mark a crucial moment for Micron Technology (MU), as the company will report Q1FY19 financial results. At the end of November, CEO Sanjay Mehrotra warned that its revenue would be “near the low end” of their initial $7.9 billion to $8.3 billion range; the stock is down more than 11% since. Investors and analysts alike are concerned about Micron’s short-term prospects, as pricing for DRAM and NAND have fallen over the past few months, with signs indicating that this will continue into 2019.

Nevertheless, Deutsche Bank analyst Sidney Ho reiterates her Buy recommendation and $60 price target, which implies about 74% upside from current levels. (To watch Ho’s track record, click here)

Ho reports that “the outlook for the memory industry in 1H 2019 has worsened with weakened demand and still-elevated inventory, which could lead to more pricing pressure in the near term.” The analyst has revised DRAM and NAND average selling prices down 11% and 14%, respectively (quarter/quarter), which has also contributed to revised (downward) gross margins.

Moving into 2019, Ho says “unconfirmed capex cuts by memory suppliers would likely lead to slower industry bit supply growth in 2019 of <20% for DRAM and <40% for NAND,” and believes NAND weak pricing will continue into 2019.

Ho believes that while she reduced her revenue estimate to the low end of guidance, there “appears (to) be some upside to our EPS estimate.” She cites Micron’s $1.5 billion share buyback program during the first quarter as a catalyst for EPS, as she expects a ~2% reduction in shares outstanding. Nevertheless, Ho’s EPS estimate is still lower than Wall Street’s estimate by about 3%.

Ho is in good company with her high price target. TipRanks analysis of 25 analyst ratings on the company shows an average price target of $58.30, or 70% higher than today’s level. Of the 25 analysts, 17 recommend Buy, 7 recommend Hold and one recommends Sell. (See MU’s price targets and analyst ratings on TipRanks)

 

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