Micron Begins Delivering Higher Cyclical Peaks

Micron Technology, Inc. MU guided to EPS of $1.50 for the May 2017 quarter, meaningfully beating the consensus expectations and representing among the biggest guidance beats in semis in 2017.

UBS’ Stephen Chin maintained a Buy rating on the company, while raising the price target from $30 to $32.

EPS Beats To Continue

The analyst believes there is potential for further EPS beats in the August and November 2017 quarters, with new smartphones ramping with potentially higher NAND content.

Stating that most of Micron’s near-term revenue and EPS upside was from higher NAND sales, Chin mentioned the company “guided its bit sales of NAND in F2H17 to be up 30 percent versus F1H17 with most of the upside in this May-17 quarter.”

The analyst believes this demonstrates robust demand for NAND in the near term.

Micron also demonstrated improved NAND execution, with gross margin at 31 percent, representing 800 bps quarter-on-quarter growth.

“We believe Micron is making progress closing the wide gap that historically existed between its 2 competitors,” Chin said.

Related Link: Deutsche Ups Micron's Price Target To $35

Cyclical Peaks

The analyst expects attention to be focused on the current memory upcycle, with the company’s EPS reaching a peak of $0.91 during the last upcycle, as compared to the May quarter guidance of $1.50.

In the last upcycle, gross margin had also peaked at 36 percent, versus the May guidance of 44-48 percent.

Chin believes Micron might not report a loss in the next downcycle, “if supply is restrained and it deleverages its balance sheet.”

The EPS estimates for FY2017 and FY2018 have been raised, following the beat guidance for the May quarter.