| Bad News for Chips Will Eventually Be Good News for Micron Stock, Analyst Says -- Barrons.com |
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| Dow Jones Newswires January 09, 2019 11:24:00 AM ET
The worse the news gets for memory chips, the better it will eventually be for Micron Technology stock (MU), an analyst said Tuesday.
On Tuesday, Samsung Electronics (005930.Korea) said its fourth-quarter operating profit will fall by almost 30%, missing analyst estimates. The company is the largest maker of memory chips in the world. Then Bernstein analyst Mark Newman raised his rating for Micron stock to Outperform from Market-perform on Wednesday, predicting a turnaround in chip prices later this year.
"After the sharp correction of memory stocks, and even with significantly lowered numbers, we now see more attractive risk/reward for 2019," he wrote in a note. "Sharper downturn is leading to faster supply response and earlier recovery in late 2019. The speed of this downturn is happening faster than usual, which should be a good thing."
Newman predicted memory industry profits will now bottom in the second quarter of this year, stabilize in the second half and then grow in 2020. He noted that in the prior downturn in memory stock prices bottomed four months before memory chip prices did.
For Micron stock, "the risk/reward is now too attractive to ignore," he wrote.
Micron stock was up 5.4% to $35.56 on Wednesday. The analyst lowered his price target for Micron to $52 per share from $60.
Last month, Micron reported a mixed fiscal first quarter and gave guidance significantly below expectations, citing weak memory industry conditions.
At the time, the chip maker forecast an earnings-per-share range of $1.65 to $1.85 for its second fiscal quarter, versus the consensus EPS estimate for $2.39, according to FactSet. Micron also said sales for the February quarter will range from $5.7 billion to $6.3 billion, versus the $7.26 billion average forecast.
A few weeks ago, Barron's suggested chip investors should wait for memory prices to turn higher. It may be prudent as this cycle could last longer than the most recent downturn in 2015 to 2016.
Write to Tae Kim at tae.kim@barrons.com |
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