Micron (MU) Stock: Breaking Down RBC’s New Bullish Call


Micron (MU) second-quarter earnings were not encouraging, to say the least. For example, revenue and EPS both plummeted — 20.5% and 39.4%, respectively. But investors seemed to have expected worse, and such fear was already priced into the stock. A deteriorating chips market and collapse in NAND and DRAM prices has led to lower revenue and investor sentiment on Micron and others in the industry, but after losing over 20% in 2018, Micron’s stock is back up nearly 25% YTD.

Micron Stock Has More Room to Run: RBC

Bullish sentiment continues to pick up, as RBC’s Mitch Steves assumed coverage of the chip giant, tagging the stock with a bullish Outperform rating and $50 price target. (To watch Steves’s track record, click here)

The memory industry is highly cyclical, so while a recent collapse in pricing and demand has led to plummeting share prices, much of this is not out of the ordinary. Steves says that the “memory space historically rallies on ‘the last cut,’ and he believes the industry is “at this point in the cycle.”

As Micron exits CYQ4, the analyst “would not be surprised to hear more positive data points as: 1) smartphones recover; 2) data center trends ramp up as hyperscale spending increases; and 3) we see increasing memory content in both smartphones and data center soak up excess supply.”

On smartphones, Steves says that “memory content is increasing broadly and even if iPhone unit sales are down in CY19 (in line with our view), if consumers continue to purchase smartphones with similar memory content this could help surprise to the upside.” Furthermore, new Samsung smartphones come with 128GB of standard memory, “which implies that a single Galaxy 10 sale consumes 2x as much memory as a standard iPhone sale.”

On data center, the analyst thinks “the vast majority of spending will be on servers and other networking equipment with a significant memory component.” Taking a look at “servers in particular, we get to an average selling price of around $5,000 with memory taking up a large chunk of the costs (could be north of 30%).”

All in all, Microns financials weren’t good, but they weren’t as bad as investors expected, either. But even with better-than-expected financials, the company isn’t out of the waters just yet. Nevertheless, TipRanks analysis of 27 analyst ratings shows analysts believe MU is trending in the right direction. Specifically, 17 analysts recommend Buy, 8 say Hold and 2 suggest Sell. The average price target among these analysts stand at of $46.90, representing a 11% upside from current levels. (See MU’s price targets and analyst ratings on TipRanks)

 

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