Shares of Micron (MU) dipped about 3% today as downward estimate revisions from Wall Street analysts covering the stock was compounded by a negative market response.
Notably, Deutsche Bank analyst Sidney Ho slashed her price target on MU from $80 to $60. That still doesn’t mean the analyst is getting bearish. Ho believes the risk-reward is still attractive at these levels and, as such, reiterates a Buy rating on the stock. (To watch Ho’s track record, click here)
Ho commented, “Our recent checks with the supply chain confirmed some of the investors’ fears. Specifically, while we believe capex by cloud data center customers remains robust, inventory levels of memory components at these customers are high at about 6-8 weeks. This will likely negatively impact server DRAM demand in the next few quarters as customers normalize their inventory levels. There are also concerns within the supply chain that near-term microprocessor shortages will lead to lower demand for PC DRAM.”
“Ahead of F4Q18 results, we are lowering our estimates for the out-quarters to reflect the recent deterioration of NAND and DRAM pricing, resulting in EPS estimate cuts of -6% for F1Q19 (Nov) and -20% for CY19E. We are also reducing our price target to $60 to reflect a lower target price-to-book multiple, as it appears we have passed the peak of the current memory cycle. While we do expect MU’s share price to be choppy in the near term, we also see rational capital spending by other memory suppliers leading to quicker stabilization of the market than previous cycles. With the stock currently trading at ~35% below our revised price target, we believe risk-reward is attractive,” the analyst continued.
Make no mistake, Wall Street loves this chip king, especially when taking note that TipRanks analytics exhibit MU as a Strong Buy. Out of 22 analysts polled in the last 3 months, 17 are bullish on Micron stock, while 5 remain sidlined. With a return potential of nearly 74%, the stock’s consensus target price stands at $75.81. (See MU’s price targets and analyst ratings on TipRanks)