| | | Credit Suisse view of MU earnings:
Bottom line: MU reported F1Q modestly ABOVE and guided F2Q BELOW in-print estimates, but ABOVE expectations. Specifically, F1Q Rev/EPS of $5.14bn/$0.48 was ABOVE Street of $5.0bn/$0.46 – F2Q Rev/EPS guide of $4.65bn/$0.35 was BELOW Street of $4.8bn/$0.39 but INLINE with CS preview and better than investor expectation of $0.25-$0.30. Importantly, MU called a F2Q bottom albeit a still gated recovery - modest cost downs, IMFT under-utilization ($125 mm/Q or 240 bps to GM), China/US Trade and PC supply constraints. While there are things to “nitpick” – (1) China Inventory Build; excess supplier inventory in 1HCY20, (2) Raised CY19 DRAM demand, lowered CY20, (3) Still modest NAND cost reductions in FY20 and (4) Higher than expected OpEx – all of this misses the point – F2Q is a BOTTOM with EPS of $0.35 vrs 5-yr trough avg. of -$0.59. Specifically, NAND/DRAM CapEx P-T declines of ~25-30% have set the foundation for supply shortages in CY20 and likely upward bias in ASPs – already seen in NAND, likely in DRAM starting in F3Q/C2Q. More importantly, we continue to be structural memory bulls as flattening cost curves (especially in DRAM) and new memory intensive applications like Cloud, AI, and 5G (especially in DRAM) should support significantly higher peak, trough and thru-cycle returns. In addition, we continue to see MU specific drivers: (1) DRAM cost gap closed on a technology basis, closing on a mix basis, (2) NAND moving from 50% high-value to ~66% by FY20, (3) NAND GM upside potential ~25% in FY19 vrs. DRAM of ~60%, and (4) GM understated by 240 bps as MU redeploys/repositioned IMFT. We are adjusting our FY20 Rev/EPS to $20.3bn/$1.90 from $20.6bn/$2.30 versus (Street $2.36) and initiating FY21 Rev/EPS of $25.00bn/$5.50 (Street $5.21) – reflecting a gradual recovery in memory starting in F3Q – with a reminder that nothing is ever gradual in memory. We reiterate our OP and maintain our Street-high PT of $90 or 13.0 times CY21 EPS of $6.89, 10x C4Q21 of ~$9.00 versus average peak P/E of 8-10x (last cycle of 5x peak was the anomaly) and 2.7x P/B versus an average peak P/B of ~3x - without considering still $7bn in authorized buybacks (7.1% of mkt cap). Lastly, while MU didn’t change FY20 CapEx guidance of $7-8bn, Rev/EPS trends support upward bias in 2HFY20 and FY21 – bullish for SCE – albeit we would note that MU NTM PE valuation relative to SCE is at a 5% discount and MU is up 67% YTD vrs. SCE up 95%. Full Report Date of Production: 19-Dec-2019 08:43:05 UTC Date of Dissemination: 19-Dec-2019 08:44:39 UTC ESTIMATE / TARGET PRICE CHANGES: No Need to Change our $90 PT S |
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