Micron earnings: Memory-chip demand has pushed stock to highest prices since dot-com boom

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Micron Technology Inc. is expected to execute an about-face earnings report compared with a quarter ago, as prices and demand for memory chips turned on a dime.

Micron
MU,
+4.33%

is scheduled to report fiscal first-quarter earnings after the bell on Thursday, following a disappointing forecast in its last earnings report. Micron was beset with concerns at that time, having lost about 10% of its revenue stream from a U.S. ban on selling to Chinese telecommunications-equipment company Huawei and what it saw as a slowdown in the mobile, auto and consumer markets because of COVID-19.

The tide turned in December, when the Boise, Idaho-based chip maker significantly hiked its outlook as prices and demand for memory chips improved, and, as Evercore ISI analyst C.J. Muse put it, “DRAM fundamentals have continued to improve since then.”

Micron specializes in DRAM and NAND memory chips. DRAM, or dynamic random access memory, is the type of memory commonly used in PCs and servers, while NAND chips are the flash memory chips used in USB drives and smaller devices, such as digital cameras.

Analysts have been paving the way to a turnaround with ratings and price hikes, and the stock price has jumped in response, closing Tuesday at its highest price since the dot-com boom after a double upgrade. Citi Research analyst Christopher Danley did a complete 180 and upgraded Micron to a buy from a sell and raised his price target to $100 from $35 on the biggest favorable DRAM supply/demand imbalance since 2017.

“Although the stock has appreciated an impressive 40% in the last two months and is trading at a higher valuation than at any time during the previous upturn, we believe there is still plenty of upside as DRAM upturns usually last two years and supply/demand looks favorable over at least the next year,” Danley wrote in a note Tuesday morning.

What to expect 

Earnings: Of the 30 analysts surveyed by FactSet, Micron on average is expected to post adjusted earnings of 71 cents a share, down from the 75 cents a share expected at the beginning of the quarter. Micron forecast 69 cents to 73 cents a share back in December, up from the 40 cents to 54 cents a share the company forecast in its last earnings report. Estimize, a software platform that uses crowdsourcing from hedge-fund executives, brokerages, buy-side analysts and others, calls for earnings of 78 cents a share.

Revenue: Wall Street expects revenue of $5.69 billion from Micron, according to 29 analysts polled by FactSet. That’s up from the $5.49 billion forecast at the beginning of the quarter. Micron predicted revenue of $5.7 billion to $5.75 billion in December, up from the $5 billion to $5.4 billion it had forecast in September. Estimize expects revenue of $5.77 billion.

Stock movement: Over the past quarter, Micron stock has rallied 38%, compared with a 19% increase on the PHLX Semiconductor Index
SOX,
+1.94%

over the same period, along with a 5% rise by the S&P 500 index 
SPX,
+0.71%

and a 6.5% gain by the Nasdaq Composite Index
COMP,
+0.95%
.

What analysts are saying

Morgan Stanley analyst Joseph Moore raised his rating to overweight and hiked his price target to $88 from $80 on Monday.

“February-quarter pricing for DRAM is tracking above our previous expectations, and while NAND prices are weaker, they are less bad than our estimates,” Moore said. “We have been surprised at how quickly pricing has stabilized, but even more so have been impressed by Micron’s earnings power in what have been tough conditions.”

Evercore’s Muse, who has an outperform rating and a $90 price target, said he sees the “DRAM Super Cycle” emerging in 2021 and 2022 as demand from Apple Inc.
AAPL,
+1.24%

and Samsung Electronics Co.
005930,
+0.12%

offsets lost revenue from Huawei.

Muse noted that Micron “said it is well on track for its goal of no impact by the end of FQ2 and we note strength for iPhone Pro (with 6GB DRAM vs. typical 4GB) is likely an upside driver here as well.”

“We also believe that this should be bolstered by continued robust demand in PC and graphics ([Nvidia Corp.
NVDA,
+2.22%

] product ramp) as well as the beginning of a recovery in auto/industrial, with cloud healthy and enterprise remaining weak.”

Of the 35 analysts who cover Micron, 29 have buy or overweight ratings, five have hold ratings and one has a sell rating, with an average price target of $84.83.



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