Goldman Sachs Neutral On Micron After Earnings

Goldman Sachs has a Neutral rating on shares of Micron MU after the company reported earnings last night. The stock is on Americas Sell List, and it has a $7 price target on shares. In the research note, Goldman writes, "Although we now see less absolute downside in the stock (based on the after-market price), we maintain our Sell rating, as we expect DRAM prices to come under pressure in 3Q11, given likely below-seasonal PC demand and relatively high levels of DRAM inventory at customers. Importantly, we think the consensus view that tangible book value (we estimate $7.95) should be a floor for the stock is likely to be challenged, given the potential for near-term operating losses, given the weak pricing environment. While Micron chose to build inventory rather than sell at lower ASPs late in the quarter as channel inventory began to increase, we do not think this is sustainable. We estimate that DRAM cash costs at the leading edge are about $0.50/Gb, compared to current spot pricing of about $0.80/Gb and contract pricing of about $1.00/Gb – and therefore expect DRAM ASPs to remain under pressure. However, we could be more positive on the stock if valuation becomes more favorable, given our expectation for strong NAND fundamentals in 2H11 and 2012, and as the mix of DRAM declines." Shares of MU are down 69 cents in pre-market trading to $7.74, a loss of over 8% this morning.