Micron (MU) is off to a great start this year. After shares dropped about 50% at then end of 2018, the stock has shot up nearly 30% in the first six weeks of 2019. As trade fears grew and negative trends in the memory industry persisted, investors pulled out in droves. It didn’t help that demand from smartphones and crypto decreased, which contributed to lower average selling prices.
According to a UBS investor survey, the “DRAM ASP decline in 2019 was far and away the most important factor for investors” in Micron, with “server DRAM demand and DRAM bit supply growth…much less [important].” UBS’ top analyst Timothy Arcuri points out that while he likes to look at other issues, including capex and NAND elasticity, there was relatively little focus on these issues.
Sentiment on the stock has changed over the past six months, though Arcuri says this “was not surprising, with ‘bullish’ and ‘very bullish’ falling from ~70% of respondents to ~30% today.” He continues, saying, “a decline in bullish sentiment is hardly surprising, but what was surprising is that investors perceived sentiment to be very balanced. We would have expected a more bearish skew.”
Looking at the company itself, Arcuri notes that his “Global DRAM and NAND supply/demand [model] reflects both lower supply and lower demand growth forecasts for both DRAM and NAND.” The analyst lowered his DRAM bit demand growth “driven by reduced mobile estimates and ongoing data center inventory headwinds.” However, Arcuri is “hopeful a reacceleration of mobile + server demand drives a strong C2020.”
On NAND, Arcuri forecasts “~47% Y/Y pricing decline in C2019 but see[s] a recovery materializing earlier than DRAM which remains plagued by a lack of demand elasticity for hyperscalers and a general desire to push pricing as low as possible (~$120/32Gb is a target we often hear) before what should be a less favorable (for them) environment in C2020.”
Overall, while Micron seems to have gotten a fresh start in 2019, Arcuri isn’t sold yet. The analyst is Neutral on the stock and has a price target of $38, which implies about 10% downside from current levels.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Timothy Arcuri has a yearly average return of 24.3% and a 68% success rate. Arcuri has an average return of 67.2% when recommending Micron and is ranked #44 out of 5,188 analysts.
Wall Street is more optimistic on Micron than Arcuri. TipRanks analysis of 25 analyst ratings on the stock shows a Moderate Buy consensus, with 17 analysts recommending Buy, seven recommending Hold and one selling. There is an average price target of $49.63, representing an upside of 17% from current levels. (See MU’s price targets and analyst ratings on TipRanks)