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Micron Technology, Inc. (MU): Don’t Fear “Oversupply” in Memory Sector; Demand Trends Shine Strong, Says Analyst

Mehdi Hosseini issues a bullish research note on MU following last night's FQ3 print, finding his case to buy the stock remains intact.


As far as Susquehanna analyst Mehdi Hosseini is concerned, his bullish thesis on Micron Technology, Inc. (NASDAQ:MU) is “playing out” just fine following the company’s second fiscal quarter show, with hyperscale computing and cloud demand for DRAM and NAND memory steamrolling forward.

Not only were both DRAM and NAND robust in the quarter, which to Hosseini is far from a “surprise,” but this demand reveals “no signs of abating any time soon.”

However, shares are slipping roughly 3% on back of a lukewarm third quarter sales guide, with guidance optics indicating a “flattish EPS Q/Q.” Factor in new cleanroom adds into the equation for DRAM and NAND and the analyst acknowledges this “could reignite ‘oversupply’ fears amongst investors.”

Hosseini remains unfazed here on capacity adds, finding that “underlying demand trends remain quite strong (and secular, not cyclical in nature), while EPS guidance is likely conservative given a relatively new CFO,” adding: “Our view of normalized EPS of $8 is gaining momentum. Given the report/guide, peak EPS of $12 is coming to fruition. We remain comfortable with supply/demand dynamics into YE18, though investors are likely to debate trough EPS in case we hit an air pocket in demand, while demand trends remain secular and up and to the right.”

“We continue to believe NAND ASPs will flatten out in 2HCY18, supported by: 1) lower than expected industry bit growth (we expect closer to ~40% vs. MU’s 45%+ expectation), and 2) strong seasonal consumer/mobile demand in 2H18 combined with secular enterprise/ cloud demand,” asserts Hosseini.

Therefore, cheering that “shares remain attractive in the context of a favorable industry backdrop for both DRAM and NAND,” the analyst reiterates a Positive rating on MU stock with an $80 price target. These target expectations notably imply a 39% upside from current levels. (To watch Hosseini’s track record, click here)

TipRanks pinpoints this chip giant as a favorite among financial experts. Out of 17 analysts polled in the last 3 months, 15 are bullish on Micron’s prospects- a strong backing, with just 2 hedging their bets on the sidelines. With a return potential of nearly 29%, the stock’s consensus target price stands at $75.75.