Micron Technology received upgrades from analysts at Nomura and Susquehanna today, a week ahead of the company’s next earnings report. Susquehanna said pricing checks suggest favorable trends, while Nomura added memory supply shortages and execution in 20-nanometer processes.
Susquehanna moves to Positive on Micron
In a report dated June 23, Susquehanna analyst Mehdi Hosseini upgraded Micron from Neutral to Positive and raised his price target on the stock from $10 to $18 per share. His checks over the last week indicate that pricing for PC and server DRAM, which make up more than half of Micron’s DRAM shipments, has been climbing. He added that while competitors are still holding inventory of mobile DRAM, Micron’s share loss in mobile earlier this year is turning out to be a good thing for it because this means that pricing in PC and server DRAM is expected to rebound better than pricing in other segments.
The analyst also reports that overall demand for NAND appears to have improved as well, and Micron should benefit as smartphone inventory refreshes come in the second half of the year drive tightening supply. Also enterprise SSD demand typically gets stronger in the second half of this year.
Micron is set to release its next earnings report on June 30 after closing bell, and Hosseini is in line with consensus estimates with the company’s May quarter revenue pegged at $2.95 billion, which is right at the middle of the guidance range. He expects losses of 8 cents per share, compared to the consensus of 10 cents per share in losses.
Nomura moves to Buy on Micron
Nomura analyst Romit Shah upgraded Micron from Reduce to Buy and raised his price target from $8 to $18 per share in a report dated June 22. He also believes that fundamentals in the semiconductor segment are improving, although he described end demand as “a mixed bag.” He noted that Micron has been one of the worst-performing of all semiconductor stocks over the last year, declining 48% compared to its peers’ average 5% decline in the same timeframe.
The analyst said Micron shares have been tracking DRAM spot pricing, which has tumbled by about 50% from the third quarter of 2014. However, he reports that average selling prices for DRAM have climbed 4% over the last week, and he adds that memory suppliers are experiencing shortages.
Further, he believes Micron has been able to deliver much higher volumes of 20-nanometer chips to the marketplace, which he expects to push operating margins into the positive amid a 15% to 20% decline in costs. He expects the company’s operating margin to improve from -2% in the May quarter to 3% in the August quarter and then 8% in the November quarter. This would result in earnings of 5 cents per share for the August quarter, compared to the consensus of 2 cents per share.
Shah emphasized that improving profitability is especially important for Micron right now because its price-to-book multiple tracks operating margins closely.
Shares of Micron Technology climbed by as much as 9.94% to $13.98 during regular trading hours on Thursday.
