Tech Trader Daily: Micron Jumps, Deserves Higher Multiple, Says Needham -- Barron's Blog
February 06, 2018
09:32 AM ET
Shares of DRAM and NAND flash chip maker Micron Technology ( MU) are up almost 4% in early trading, at $40.85, after the company late yesterday raised its fiscal Q2 revenue and profit outlook comfortably above consensus, and announced a change of chief financial officer.
That has prompted at least two upgrades of the stock this morning, from Needham & Co. and KeyBanc Capital Markets.
The company now sees revenue in the three months ending in February.
Chief executive officer Sanjay Mehrotra remarked that the company "continues to execute well against our strategic priorities as we undergo our chief financial officer transition." He deferred any further remarks till the company's official earnings report, on March 22nd.
Micron now sees revenue of $7.2 billion to $7.35 billion, up from its prior forecast of $6.8 billion to $7.2 billion. EPS is seen in a range of $2.70 to $2.75, up from $2.51 to $2.65 previously.
That compares to consensus for $7 billion and $2.57 per share.
The company said CFO Ernie Maddock is retiring but will remain a consultant to the company through June. His role will be taken over by David Zinsner, who comes to the company from startup Affirmed Networks, and who was previously CFO of analog chip giant Analog Devices ( ADI). Mehrotra thanked Maddock for "his significant contributions," and for setting up Micron for "continued strong growth."
Rajvindra Gill of Needham, raising his rating on the stock to Strong Buy from Buy, and reiterating a $76 price target, writes that the pre-announcement confirms his faith in the "memory cycle."
Writes Gill,
We believe Micron has room to expand NAND gross margins despite a declining pricing environment. Furthermore, we believe whatever excess NAND supply in the market will be absorbed by demand for client and data center SSDs. Now that we've seen evidence of two consecutive quarters indicating $10+ annualized earnings, we are upgrading to Strong Buy from Buy. We believe the market is incorrectly applying a trough multiple on peak earnings. Over time, in our view, this disconnect will close and we should see a re-rating in the multiple.
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