No doubt Micron (MU) has confounded the investment community. Many believed the low price-to-earnings (PE) ratio would bring in buyers. Moreover, changing technologies have led to a seemingly insatiable demand for memory. However, weak memory prices weighed on the chip giant, and if history provides any guide, as long as memory prices head down, Micron stock will follow.
Adding insult to injury, Susquehanna analyst Mehdi Hosseini downgrades MU from Positive to Neutral, while slashing the price target to $45 (from $75), which implies an upside of 16% from current levels. (To watch Hosseini’s track record, click here)
“Based on recent checks suggesting a more challenging Enterprise/Cloud demand environment, we are downgrading shares of MU from Positive to Neutral to account for a continued downtick in the DRAM demand forecast for 1H19. We believe the memory industry will warrant higher valuation multiples, but not until we can test the quarterly trough OM/EPS – which now appears to have been pushed out by a few quarters,” Hosseini explained.
The analyst added, “Although memory stocks have been under pressure since mid-year, discounting worse than expected NAND ASP trends, we do not believe the full extent of DRAM ASP weakness has been dialed in. In this context, we find it prudent to move to the sidelines until we have increased conviction in ASP trends, and as such, in a worst-case OM scenario of 23-25% (to materialize by mid-to-late 2019).”
When looking at Wall Street’s stance, Hosseini is not the only bull, as TipRanks analytics showcase MU as a Buy. Out of 24 analysts polled in the last 3 months, 17 rate a Buy on Micron stock, while 7 maintain a Hold. The 12-month average price target stands at $64.86, marking a 68% upside from where the stock is currently trading. (See MU’s price targets and analyst ratings on TipRanks)
Micron shares are down nearly 1% to $38.33 in pre-market trading Wednesday.