Top Analyst Throws in the Towel on Micron Technology (MU), Sees Advantage in Marvell Technology (MRVL)

UBS’s top analyst Timothy Arcuri has initiated coverage of the semiconductor space, announcing mixed ratings on 2 tech stocks: Micron Technology, Inc. (NASDAQ:MU) and Marvell Technology (NASDAQ:MRVL).

Before we start, as usual, we like to include the analyst’s trackrecord when reporting on new analyst notes. According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, 5-star analyst Timothy Arcuri has a yearly average return of 27.2% and a 71% success rate. Arcuri is ranked #25 out of 4,766 analysts.

The Bad: Micron Technology

Arcuri initiated coverage on shares of Micron with a Sell rating and price target of $35.00, which implies a 30% downside from today’s closing price.

Arcuri wrote, “We believe MU has become a dramatically better company – having closed the technology gap with its peers in recent years – and operates in a structurally better market due to long-term changes on both the supply and demand side. All of that said, we just saw peak EPS guidance and think MU is ~2Qs away from a cycle of potentially significant estimate cuts primarily due to a near-term wave of DRAM supply; in 20+yrs of history, the stock has not worked during such periods. After estimates come down, we do see the potential for MU to re-rate higher out the other side to reflect these structural inflections, but we think fighting these cuts through 2H:18 and 2019 (we are ~40% below Street for CY2019E) is going to be a losing battle.”

In other words, “MU is a structurally improved company in a structurally better market, albeit still cyclical and on the cusp of a cycle of estimate cuts starting later this year. While we argue the stock deserves to be rerated higher, 20+yrs of history shows that MU does not work when estimates are coming down. Net, given our view of cross cycle EPS and EBITDA, we feel that MU could be a core holding on a structural re-rating, but investors may get a better opportunity as we see downside to $31.”

Most of the Street is far more confident than Arcuri’s bearish stance, with TipRanks analytics showcasing MU as a Strong Buy. Based on 21 analysts polled in the last 3 months, 17 rate a Buy on Micron stock while 3 issue a Hold, while only Arcuri recommends a Sell. The 12-month average price target stands at $72.35, marking a nearly 45% upside from where the stock is currently trading.

The Good: Marvell Technology

In a remarkably confident call, Arcuri says Marvell stock can reach $38.00 (80% upside) in the next 12-months. As such, the analyst initiates coverage with a Buy rating on the chip maker.

Arcuri commented, “We believe the acquisition of CAVM is a true game-changer that catapults MRVL into fast growing 25/100G areas of the high-end networking segment alongside AVGO. This adds a new growth vector on top of the stable cash flows in MRVL’s core storage business, and we see cost and revenue synergies that are not contemplated in its new financial model. We think Street estimates, meanwhile, are about to go much higher as CAVM is rolled into numbers and targets. Even standalone, MRVL is still trading at a hefty discount to its peers, which we view as an unwarranted remnant of the past, especially given this management team’s track record of margin improvement.”

Arcuri is not the only fan of the semiconductor maker on Wall Street, as TipRanks analytics exhibit MRVL as a Strong Buy. Based on 13 analysts polled in the last 3 months, 11 rate a Buy on Marvell stock while 2 recommend a Hold. The 12-month average price target stands at $27.92, marking a 32% upside from where the stock is currently trading.


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