Micron (MU): Top Analyst Anticipates More Good News to Come

RBC Capital's Amit Daryanani says capital allocation is next on Micron's slate and eventually sees EPS power hitting past $8.00.


Micron (NASDAQ:MU) stock was on an almost 4% upturn yesterday and continues to soar another just under 5% this morning. What’s exciting investors? Enthusiasm boils down to the chip giant’s board giving a nod to a buy back plan- one worth as much as $10 billion in shares; and a fiscal third quarter guidance boost that showcases positive momentum ahead. For a giant that already has given shareholders a taste of confidence with an intent to return a minimum of 50% of free cash flows at the start of fiscal 2019, it is looking to be a stellar week to be a Micron investor.

Top analyst Amit Daryanani at RBC Capital chimes in ahead of the company’s analyst day with an upbeat take on the encouraging pre-announcement check, expecting “more to come” in good news. Specifically, the analyst keeps a close eye on expectations for capital allocation.

In reaction, the analyst reiterates an Outperform rating on MU stock with an $80 price target, which implies a close to 38% upside from current levels.

Micron lifted its third fiscal quarter guide from $7.40 billion in revenue to $7.75 billion at the mid-point and from $2.83 in EPS up to $3.14 at the mid-point. The analyst takes this in bullish stride, considering this surpasses the tail-end of the previous guide that angled for $7.20 to $7.60 billion in revenue and $2.76 to $2.90 in EPS.

Ultimately, “While the company hasn’t provided specific drivers of the strong performance, we note that while revenue upside vs. previous guide is ~5%, EPS is up ~11%. This implies GMs were likely strong, which could be on account of continued strength in DRAM ASPs, and better than anticipated NAND mix and yield improvements. While the pre-announcement checks one of our pre-analyst day expectations list, we think there is more to come. We expect MU will: 1) provide a capital allocation update reflecting buybacks once it gets to net-cash neutral level; 2) provide a framework to think through downside in trough cycle; 3) provide technology roadmap for both NAND (96L transition) and DRAM (1Y update); and 4) update capex for next year; we think $9–10B. Net/Net: We think longer-term the stock is on track for $8.00+ mid-cycle EPS enabling a price toward $80,” Daryanani contends.

On back of the positive pre-check, the analyst adjusts his former forecasts of $7.4 billion in revenue and $2.83 in EPS up to $7.6 billion and $3.14, soaring above Street’s estimates looking for $7.48 billion and $2.85 before the pre-announcement. For full-year 2018 expectations, the analyst hikes his prior projections calling for $29.3 billion in revenue up to $29.9 billion and $10.94 in EPS up to $11.47. For context, before the pre-announcement, the Street was looking for $29.3 billion in revenue from the chip giant for the year and $10.93 in EPS. Considering the company is primed to make investors happy with goals to realize a net-cash neutral position by the close of the third or fourth fiscal quarter, and with a lofty free cash flow generating ranging beyond $8 billion, the analyst puts good odds on MU pulling off a substantial multi-year buyback program. After all, the company likewise has “limited inorganic initiatives” in the works, and Daryanani predicts MU reveals an over $5 billion buyback program to span the course of three years. How much free cash flow could be returned to shareholders? The analyst concludes anticipating roughly 25%.

Amit Daryanani has a very good TipRanks score with an 84% success rate and a high ranking of #16 out of 4,798 analysts. Daryanani realizes 27.4% in his annual returns. However, when recommending MU, Daryanani forfeits 1.8% in average profits on the stock.

TipRanks suggests a strong bullish consensus circling the chip giant. Out of 23 analysts polled in the last 3 months, 19 are bullish on MU stock, 3 remain sidelined, while 1 is bearish on the stock. With a return potential of nearly 34%, the stock’s consensus target price stands at $74.23.

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