Should You Sell Micron (MU) Stock in Light of DRAM ASP Correction? This Analyst Doesn’t Think So


Susquehanna analyst Mehdi Hosseini took time from his 3Q18 trip to Asia to update investors with his thoughts on the ongoing DRAM ASP correction, while highlighting his top pick – – Micron (MU).

The net takeaway from the first leg of Hosseini’s Asia trip is that demand weakness is now wider spread. As such, the analyst is lowering estimates, which is aimed at helping the investment community to better quantify the worst-case scenario, which also helps with fine-tuning normalized earnings expectations.

Subsequently, Hosseini cut his price target on Micron shares from $80.00 to $75.00, while reiterating a Buy rating on the stock. The new target implies a potential upside of 74% from current levels. (To see Hosseini’s stock picks, click here)

“Micron’s margin and quarterly earnings profile has changed due to the structural changes the company has implemented while Cloud/ Enterprise now accounts for a higher mix of bit demand. In fact, updated estimates suggest 27 pts. of correction in quarterly OM (peak to trough). But, the estimated trough OM of 25% actually exceeds the peak OM of the prior two up-cycles. Yes, it would be difficult for investors to step up and buy shares while amidst a perception that consensus estimates are about to be decimated. But, we also argue that over the next few months, there will be evidence supporting quarterly earnings bottoming at an annualized run rate exceeding $5 by mid-2019, which is higher than prior cycle peak earning. Despite N-T volatility, we argue L-T risk/reward profile is becoming compelling since we are now better able to quantify downside risk,” the analyst wrote.

Overall, when it comes to Wall Street’s bet, the odds are on this chip giant, with TipRanks analytics showcasing MU as a Strong Buy. Out of 21 analysts polled in the last 3 months, 18 are bullish on Micron stock while 3 remain sidelined. With a return potential of nearly 86%, the stock’s consensus target price stands at $80.79. (See MU price targets and analyst ratings on TipRanks)

 

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