Top analyst Vijay Rakesh at Mizuho just held investor meetings with Micron Technology, Inc. (NASDAQ:MU) CFO Ernie Maddock at his 2017 annual Mizuho Investor Conference (MIC). The verdict? Pay no attention to recent NAND panic of falling memory prices, as one of Wall Street’s best performing analysts on the Street is calling for NAND stability through the first half of 2018 coupled with robust DRAM.
Anticipating a “relief rally” for the chip giant ahead of its first fiscal quarter print of 2018 due December 19th, the analyst maintains a Buy on MU stock with a price target of $45, which implies a slight 2% upside from where the stock is currently trading.
What precisely “sets the table” for Micron to experience such a “strong rally” ahead of its quarterly earnings? Rakesh points to rival AVGO, whose performance showcase released Wednesday after the bell “takes the cake” and “alleviates much of the concern in the semi group.”
Keep in mind, “Semi investors have been on pins and needles with worries about weaker iPhone X demand,” Rakesh writes, elaborating that positively for Micron, “At least N-T, AVGO put that debate to rest as it noted given better visibility, it sees its JanQ wireless revenue growing q/q (we estimate ~7-8%) after growing ~40% q/q in the October quarter). We believe AVGO’s guidance may point to a strong Q and guide when MU reports on December 19.”
On the heels of the analyst’s investor meetings with the chip giant’s team, he comes away quite unfazed regarding Wall Street’s wildest bearish fears on flash memory, as Rakesh asserts: “We believe MU continues to see a stable NAND environment through 1H18, while DRAM remains strong. MU noted it should be able to close the DRAM technology gap.”
In fact, the analyst gives more credence to the rising emergence of original equipment manufacturers (OEMs) in the back half of next year, adding, “We believe MU continues to see NAND stable through 1H18 with balanced supply and demand, and supply risk mostly in 2H18 when OEM capacity expands.”
Finding that Micron’s team recognizes capital expenditures (Capex) as a long-term “underpinning for technology and cost leadership,” Rakesh believes investors should expect the chip maker to “continue with Capex even if NAND pricing softens.”
Even though Micron anticipates NAND pricing will “likely” take a dip next year, Rakesh makes a case that the company’s “2:1 ratio of bit growth to cost reduction has been a good rule of thumb for the past 20 years,” predicting MU will still generate over 50% of bit gains for 2018 and prospectively see up to a quarter in cost reductions.
Looking ahead to fiscal 2018, the analyst projects Micron will achieve revenue of $24.1 billion and $7.61 in EPS, with fiscal 2019 expectations slightly less high, as Rakesh winds down his revenue forecast to $23 billion and EPS to $6.69.
Vijay Rakesh has a very good TipRanks with a 70% success rate and a high ranking of #28 out of 4,721 analysts. Rakesh yields 25.9% in his annual returns. When recommending AVGO, Rakesh garners 35.4% in average profits on the stock.
TipRanks has pooled Street-wide data over the last 3 months that highlights a strong bullish consensus backing this chip giant. Out of 24 analysts, 22 are bullish on Micron stock while only 2 remain on the sidelines. With a solid return potential of nearly 24%, the stock’s consensus target price stands at $53.48.