Micron (MU) Stock’s Upside Trimmed by Lower Component Demand, Says Analyst


Micron Technology (MU) is due to release its Q1F19 financial results next week, but analysts are already adjusting their expectations downward. For one, Micron CEO Sanjay Mehrotra warned investors that revenue would be “near the low end” of their initial $7.9 billion to $8.3 billion range. But there is also concern among analysts about the components market, which has seen decreased demand over the past few months.

Susquehanna analyst Mehdi Hosseini cites economic cycles as the reason for lowered demand, not necessarily fallout from the US-China trade war. Hosseini expects decreased component demand to impact Micron and continue over the next quarter; the analyst has lowered his price target from $45 to $40, while maintaining his Neutral rating. (To view Hosseini’s track record, click here)

Hosseini expects lower DRAM and NAND bit shipment for 2019 and 2020 to contribute to slower earnings growth. The analyst estimates DRAM and NAND growth at 18% and 35% in 2019, down from 20% and 40%, respectively, before the revisions. Hosseini notes that his revision for Micron is “consistent with our estimate reduction” for similar companies, including Samsung and SK Hynix.

The analyst adds, “(the updated) estimates imply material downside risk to consensus estimates. For the February and May quarters, our updated estimates of $1.63 and $1.02 compare to current consensus of $2.50 and $2.30, respectively. Thus, although (Micron) should be able to meet November-quarter consensus estimates, we expect the February-quarter guide to fall well below the consensus.”

While Hosseini rates the stock as Neutral and is expected slower sales growth, he still estimates the company’s stock price has plenty room to grow (nearly 30%). Nevertheless, Wall Street is significantly more bullish on Micron than Hosseini.

TipRanks tracks 26 analyst ratings on the company, with an average price target of $58.75, or nearly 67% higher than today’s level. Of the 26 analysts, 17 recommend Buy, eight recommend Hold and one recommends Sell. (See Micron’s price targets and analyst ratings on TipRanks)

 

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