Micron (MU): Is There Really a Recovery on the Horizon? Deutsche Bank Weighs in on the Stock

Micron (MU) is hoping to be on the up-and-up.

Following a terrible end to 2018, where shares dropped about 50%, the stock is up 30% since the beginning of this year. Investors fled the stock over trade fears and concerning macro-level trends in the memory industry, including vast oversupply stemming from slower (and lower) demand from smartphones and crypto. As demand has slowed, average selling prices have fallen. Perhaps investors are turning a corner on Micron, as sentiment seems to be growing that the tides will be changing for Micron and the industry as a whole. Deutsche Bank analyst Sidney Ho believes this to be the case, as he maintains his Buy rating and $48 price target. (To watch Ho’s track record, click here)

Ho says the “trough could be deeper,” but remains positive for a second-half recovery. The analyst lowers his estimates on “weak DRAM pricing trends” but believes “aggressive capex cuts by memory suppliers combined with a recovery in server demand should lead to a more favorable supply-demand environment by mid-2019.” While industry companies do not have control over demand-side, Micron and co. can control what and how they spend, which can help boost finance health even in times of struggle.

Looking ahead, Ho is lowering Q2 revenue and EPS estimates even though Micron did not update guidance. While his expectations are still in range of Micron’s guidance, they come at the low end (analyst $5.78b revenue/$1.60 EPS vs. guidance low-end $5.7b revenue/$1.65 EPS). Ho says, “the primary driver for our lower estimates is DRAM ASP, which we now expect to decline -19% q/q, vs. our prior estimate of -14%.”

Ho notes that “PC DRAM contract prices quarter-to-date have declined more than we expected with January prices down -17% m/m, and we expect further price compression in February following the Chinese New Year holidays.” Looking beyond Q2, the analyst also lowers his estimates because of weaker pricing but “believe(s) earnings estimates will trough in F3Q (May), albeit at a lower level than we previously expected,” which will carry over to Q3 and Q4.

How does Ho’s bullish bet weigh in against the Street? It appears the analyst is not the only one enthusiastic on this chip giant’s prospects, with TipRanks analytics demonstrating MU as a Buy. Out of 26 analysts polled in the last 3 months, 17 recommend Buy, eight issue Hold and one suggest Sell. The average price target stands at $49.63, representing an upside of nearly 19% from current levels. (See MU’s price targets and analyst ratings on TipRanks)


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