| | | Buy Micron Stock Because Memory-Chip Pricing Is Set to Recover, Analyst Says -- Barrons.com
DOW JONES & COMPANY, INC. 11:13 AM ET 12/16/2019
Symbol Last Price Change | MU | 53.7725 | +2.5725 (+5.02%) | | WDC | 57.42 | +3.12 (+5.75%) | | QUOTES AS OF 11:14:11 AM ET 12/16/2019 |
Micron Technology (MU) shares were trading higher Monday morning after Susquehanna Financial Group analyst Mehdi Hosseini lifted his rating to Positive from Neutral and raised his price target on the stock to $85 from $45, anticipating a strong recovery in the supply-and-demand balance for memory chips in 2020 and 2021.
On a similar basis, he also raised his rating on Western Digital(WDC) to Positive from Neutral, lifting his target to $90, from $55.
For Micron's (MU) 2020 fiscal year ending in August, Hosseini actually trimmed his earnings-per-share forecast to reflect near-term pricing trends, and sits well below his analyst peers. But he thinks a turn will start with the quarter ending in May and will continue from there, leading him to be well above consensus for fiscal year 2021.
He cut his fiscal year 2020 EPS forecast to $1.95 from $2.07, but raised his 2021 forecast to $6.56 from $5.97. And he said Micron has "earnings power" in the $8 to $10 a share range. Street consensus estimates call for profit of $2.44 a share this year and $5.29 next year.
Micron will report results for its fiscal first quarter ended in November on Wednesday after the close of trading. Hosseini thinks profit will be in line with the company's guidance at around 35 cents a share. But he said he sees improving fundamentals ahead, with EPS likely to hit bottom in the current quarter.
Hosseini thinks the company will benefit in coming quarters from improving economics for both DRAM and NAND memory chips. DRAM is used in personal computers, workstations and servers. NAND chips are used in smartphones and solid-state drives.
For DRAM, he thinks average selling prices will be down in the low teens quarter over quarter for the first quarter, with a mid-single-digit decline in the current quarter ending in February, and then show a 3% to 5% quarter- over-quarter increase from there. He sees the company's gross margin in DRAM troughing in the low 30% range in the February quarter before rebounding to the high 40s by the end of fiscal year 2020 and into the 50s in 2021. "We expect DRAM bit demand growth in 2020 to reach 20%-plus, driven by smartphone bit demand growth of 25%-30%, and exceeding supply bit growth of midteens," he wrote in a separate note on the outlook for chip demand.
For NAND, he expects a low single-digit slide in pricing in the fiscal first quarter, with a similar decline in the current quarter. He sees NAND gross margins troughing in the current quarter, with gradual improvement into the 20s in fiscal year 2020. Investors will need to wait for 2021 to see a meaningful recovery in the 30s or 40s, he wrote. The analyst expects NAND bit demand growth in 2020 to reach 30% to 35%, exceeding supply growth of 25% to 30%.
Micron stock was up 4.6% to $53.57 Monday morning. The Dow Jones Industrial Average was up 0.8%.
Write to Eric J. Savitz at eric.savitz@barrons.com |
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