Micron (MU) is expected to announce second-quarter results after the closing bell today, as investors are eager to see how falling average selling prices (ASPs) are impacting the semiconductor giant’s bottom line. The chip industry has been hit with a storm of high supply and low demand, which has pushed prices downwards. Nevertheless, BMO analyst Ambrish Srivastava remains bullish on MU stock ahead of the print, maintaining an Outperform rating with $50 price target, which implies about 25% upside from current levels. (To watch Srivastava’s track record, click here)
There is no arguing that the memory market has deteriorated, Srivastava says. The analyst also believes conditions will get worse before they get better, which is holding true as DRAM prices continue to decrease, with no signs of reversing course in the near term. As a result, Srivastava is “now modeling for the lowest point in y/y deceleration in DRAM pricing to occur in F4Q.
While the analyst expects prices to continue to remain a challenge, DRAM inventory seems to be improving. Srivastava believes “inventory peaked at around 10-12 weeks in December vs. the ~4 weeks (normal) and is starting to come down, albeit very slowly,” though “will not decrease meaningfully until at least we head into Micron’s F4Q.” Nevertheless, the trends seem to be changing, which is a be a boost to Micron.
Even though conditions are not ideal for Micron in the short term, the analyst says his “thesis on the shares of MU remains intact. Bottom in share price is likely behind us, we do not see negative FCF, and we see book value/share going up. All this in spite of pretty bad fundamentals in memory, particularly in DRAM.”
All in all, though there is no telling if the industry is reversing course, this downturn is not necessarily scaring investors away. Many are aware at the nature of the business, which goes through times of booms and busts. So many investors do not see these negative trends holding in the long-term. How do we know that? The stock has gained 27% year to date.
When looking at Wall Street’s stance, Srivastava is not the only bull, as TipRanks analytics showcase MU as a Buy. Out of 20 analysts polled in the last 3 months, 10 are bullish on the stock, 9 remain sidelined, and only 1 is bearish. However, the 12-month average price target stands at $26.06, suggesting the stock is neither oversold nor overbought. (See MU’s price targets and analyst ratings on TipRanks)