A Glimpse Into Apple Inc.’s (AAPL) 3D Upgrade and Micron Technology, Inc.’s (MU) DRAM Pricing Challenges


Is Apple Inc. (NASDAQ:AAPL) at the forefront of 3D technology and are Micron Technology, Inc. (NASDAQ:MU) DRAM pricing concerns overblown? J.P. Morgan and Nomura think so. One analyst chimes in assessing Apple’s draw to AR has more to do with the front-facing 3D sensor package near-term while another analyst is steadfastly bullish on Micron in his quarterly print preview, finding wary investors have misplaced their bull’s eye on soft DRAM spot pricing. Let’s dive in:

Apple Tipping in Favor of 3D Technology

J.P. Morgan analyst Rod Hall weighs in on the Apple iPhone X rumble, excited about the potential for 3-D scanning. Therefore, in anticipation of the launch, rumored to hit this fall, the analyst reiterates an Overweight rating on shares of AAPL with a $142 price target, which aligns with current levels.

Though the analyst foresees Apple will dabble in augmented reality down the road, short-term, he sees 3D technology taking center stage, with an infrared camera likely to be on the front of the iPhone X, adding $10 to $150 to the price tag.

Hall explains, “Apple certainly has an interest in AR (augmented reality) as a long-term technology, but we do not expect this sensor to initially be used for that purpose. We believe Apple is initially planning to use the front-facing 3D sensor package for highly accurate biometric facial recognition. In our opinion this is due to the removal of a home button on the OLED […] and the difficulty that various companies have had in getting under screen fingerprint sensors to work. Apple itself talks about a 1 in 50,000 chance that another person is able to unlock your phone using their fingerprint. We believe that this type of detailed 3D facial mapping may provide a significantly higher level of security, which would likely be of interest to Apple Pay payment providers as well as merchants.”

Ultimately, “We realize that AR has more ‘fake news’ appeal than facial recognition. However, we believe that facial scanning biometrics would alleviate irritating fingerprint sensor failure in the wet conditions iPhones are now designed to survive. We also suspect that facial recognition is more secure than 1 in 50,000 fingerprint scanning and could help with Apple Pay adoption,” Hall concludes.

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, four-star analyst Rod Hall is ranked #1,105 out of 4,564 analysts. Hall has a 48% success rate and earns 6.2% in his annual returns. When recommending AAPL, Hall gains 15.0% in average profits on the stock.

TipRanks analytics show AAPL as a Buy. Out of 36 analysts polled by TipRanks in the last 3 months, 28 are bullish on Apple stock, 6 remain sidelined, and 2 are bearish on the stock. With a return potential of nearly 6%, the stock’s consensus target price stands at $149.50.

Micron Earnings Should Not Revolve Around DRAM Pricing

Nomura analyst Romit Shah offers a confident earnings preview on Micron ahead of the print expected Thursday after market close. For investors tripped up on the smoke-and-mirrors effect of DRAM pricing trends, the analyst redirects focus, believing it is a mistake to let DRAM encompass the whole earnings picture.

As such, the analyst remains unfazed by present valuation, seeing it as a reflection of overblown concerns regarding “weaker” DRAM pricing trends. Ahead of the print, the analyst reiterates a Buy rating on MU with a price target of $30, which represents a 14% increase from where the shares last closed.

Shah opines, “We believe investors are overly focused on DRAM spot pricing because it was a leading indicator that was largely ignored during the last downturn. […] we believe the setup today is noticeably different than the fall of 2014 and supportive of a higher stock price over the coming periods.”

“The direction of operating margin over the last five years has strongly correlated with Micron’s price-to-book multiple and share price; however, the relationship has broken down recently,” explains the analyst.

However, Shah does acknowledge, “Spot pricing flattened out over the last month and suffered a notable decline of almost 2% last week,” which was the first week-over-week dip from November. From the analyst’s eyes, this stems from the trouble spot of the smartphone market in China playing catch up with spot pricing.

Overall, “While pricing is a key driver of operating margin, we believe investors are overly preoccupied with DRAM pricing trends. To put things in context, DRAM spot pricing was a leading indicator that was largely ignored during the prior down-cycle. Spot pricing peaked in August 2014, while positive estimate revisions and MU’s share price peaked in December 2014,” Shah contends.

According to TipRanks, five-star analyst Romit Shah is ranked #187 out of 4,564 analysts. Shah has a 63% success rate and realizes 14.7% in his yearly returns. When recommending MU, Shah yields 32.9% in average profits on the stock.

TipRanks analytics indicate MU as a Strong Buy. Based on 20 analysts polled by TipRanks in the last 3 months, all 20 rate a Buy on Micron stock. The 12-month average price target stands at $30, marking a 14% upside from where the stock is currently trading.

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