Jon Hadad

About the Author Jon Hadad

Jon Hadad graduated from the University of Delaware with a degree in political science. Prior to joining the Smarter Analyst team, he was an industry analyst at a New York research firm.

This Analyst Sees Micron (MU) Stock Falling a Bit Further; Here’s Why


One step forward, two steps back. That’s how many feel about Micron (MU).

While the chip giant saw first-quarter sales of NAND rise as much as 10%, average selling prices dropped nearly 25%, according to DRAMeXchange. Micron also halted shipments to Huawei after the US slapped a trade ban on Micron’s largest customer. As a result of the continued US-China trade war, investors are pulling out of Micron’s stock as the company generates the majority of revenue from China sales. Overall, Micron stock has lost nearly 20% since the beginning of May.

Susquehanna analyst Mehdi Hosseini believes there is more room to fall, as he lowers his price target on MU from $35 to $30, while reiterating a Neutral rating on the stock (To watch Hosseini’s track record, click here)

The US-China trade war couldn’t have come at a worse time for Micron. Finally, its stock showed momentum — rising 36% from the beginning of the year. The company is extremely close to China, with more than half ($17 billion) of revenue coming from China. While many investors see the US and China trade war as temporary, this hasn’t stopped some from jumping ship for more stable choices.

Amid the trade war, Hosseini is reducing estimates for Micron. The analyst expects May-quarter revenue and EPS (due at the end of this month) to “come in at-or-below the low end of the guide range,” as the industry is plagued “by a weaker pricing environment, and a halt in shipments (~2 weeks) to Huawei…” Hosseini’s estimates are significantly lower than Wall Street consensus, at $4.6 billion revenue ($4.78 billion Street), and EPS of $0.75 ($0.84 Street).

Revenue and margins are both feeling the squeeze from Server DRAM demand. The analyst says, “demand [will remain] weak into 2H19,” and is now “modeling for a ~20% Q/Q decline in blended DRAM ASPs in the Aug-Q,” with NAND APSs expected to drop a bit more modest 15% Q/Q. Overall, Hosseini expects blended gross margins to decrease 27%, and does not expect “DRAM and NAND ASP declines to moderate until YE19,” which will drive operating margins to “near breakeven point by the Nov Q.”

All in all, Micron is caught in the middle of two fires that really wasn’t its fault — the industry’s downturn, and resumed US-China trade war. But many analysts are optimistic over the company’s long-term as the industry eventually returns to normal levels and US-China tension cools. TipRanks analysis of 26 analyst ratings shows a Moderate Buy rating, with 13 analysts recommending Buy, nine saying Hold and four suggest Sell. The average price target among these analysts stand at $50.63, which representing a 55% upside from where the stock is currently trading. (See MU’s price targets and analyst ratings on TipRanks)

 

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