Analyst Says Buy Micron (MU) Stock on Weakness; Here’s Why


Micron (MU) has been trading at a low price-earnings ratio for the last 12 months and it leaves those who pay attention to the chip industry asking why? Deutsche Bank’s analyst Sidney Ho says the reason is clear. “It’s obvious to us that the market is pricing in consensus EPS estimates [that] will have to come down from the current level, considering the stock historically has traded at a median of 8-9x P/E through the cycle.” Ho describes what he believes to be the next trough EPS and concludes that the stock appears to be trading at a normalized price-earnings multiple on the current trough EPS, which makes the stock look attractively valued.

“While we expect memory pricing to remain soft in 1H CY19, we expect capex cuts by memory suppliers in 2H18/1H19 to lead to a quicker stabilization of memory prices than in previous cycles,” Ho said.

The analyst continues to note near-term price weakness leads him to cut EPS estimates. Ho says he takes into account comments from memory/storage suppliers in from the past few weeks, which encourage him to lower estimates for the chip giant. Ho takes first quarter fiscal year 2019 estimates to the low end of guidance and expects difficult pricing to continue through the first half of 2019, yet he is optomistic.

“We do see signs of hope that price declines will moderate by mid-2019 as memory companies have announced their intention to cut back on capital spending. Overall, we lower our EPS estimates for F1Q19E from $3.00 to $2.88 and CY19E from $10.00 to $8.50, which is below current Street estimate at ~$10. As discussed earlier, this estimate cut should not be a surprise given where the stock trades at, and we expect Street estimates to follow,” Ho asserted.

Bottom line: The analyst maintains a Buy rating on MU with a $60 price target, which implies a 62% upside from current levels. (To watch Ho’s track record, click here)

There’s quite a few other analysts who feel hopeful about the chip giant stock as well. Out of 24 analysts offering ratings for Micron, 16 are bullish, while 8 are sidelined. Overall, the consensus price target stands at $63.52. (See MU’s price targets and analyst ratings on TipRanks

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