Micron (MU) can add the resumed trade conflict between the US and China as another external factor contributing to concern over its stock.
The company has shown promise in digging itself out of an intense hole caused by industry-level events largely out of its control. The DRAM and NAND market collapsed, as demand decreased and inventory increased, which caused revenue to drop on lower average selling prices. While the company seems to be turning around, renewed US-China fears have caused shares to plummet 20% this month, as Micron is heavily tied and invested in China.
Yet, analyst Eric Ross of Cascend Securities remains optimistic, as he rates Micron stock his Buy along with a $50 price target, which implies nearly 50% upside from current levels. (To watch Ross’ track record, click here)
More than half of Micron revenue comes from China — $17 billion out of a total $30 billion in 2018 — which is at risk as the US and China continue to slap tariffs on each other. Naturally, if a Chinese tariff were to directly impact Micron, revenue and sales would surely decrease.
But Ross isn’t too concerned on the China threat, as many expect the trade war to be only temporary. The analyst is more concerned about recovery. He says that “NAND is further along recover than DRAM,” with inventories down, while DRAM still sees high inventory.
Ross expects DRAM prices to decrease 20% in the second quarter, but sees good news in “inventories…being burnt off.” But while customer inventory is being sold — and therefore new sales are stalling — Ross expects it to “take a while” for the process to take shape.
On NAND, the analyst says Micron is a “bit more protected,” given its high-end solutions and higher-margins. But DRAM accounts for nearly two-thirds of Micron revenue, which puts the focus on its recovery for overall company performance. As it will take time for both markets to fully recover — especially DRAM — Ross says Micron “represents a good value play” only for investors that are “willing to wait a year to see significant returns.”
All in all, as Micron’s industry historically ebbs and flows, not much blame was put on the company over its recent stock fall. Similarly, as China fears rise, many will have trouble directly blaming Micron. But as fears dissipate and the industry returns to normalcy, analysts see the stock as a buy. TipRanks analysis of 25 analyst ratings shows a Moderate Buy rating on Micron stock, with 13 analysts recommending Buy, nine saying Hold and three Selling. The average price target among these analysts stand at $53.42. (See MU’s price targets and analyst ratings on TipRanks)