KeyBanc: Cloud Providers Fuel Micron's Strong Q2

Micron Technology, Inc. MU reported forecast-beating non-GAAP earnings per share and revenues for its fiscal 2018 second quarter after the close Thursday. 

The Analyst

KeyBanc Capital Markets analyst Weston Twigg maintained an Overweight on Micron and increased the price target from $65 to $72, suggesting 22-percent upside from current levels.

The Thesis

Micron's Q2 results and third-quarter guidance reflect high memory demand that supported record revenues, margins and cash flow, Twigg said in a Thursday note. (See the analyst's track record here.) 

"Demand from cloud service providers was a meaningful driver of upside," the analyst said — 30-percent quarter-over-quarter.

Additional growth came from mobile, gaming and automotive, according to KeyBanc. 

DRAM contributed 71 percent of overall revenue and 66 percent of the gross margin due to high demand and tight supply, Twigg said. NAND accounted for 25 percent of revenue and 47 percent of tthe gross margin.

A sequential drop in NAND gross margin was due to lower pricing, as industry NAND supply ramps in the first half of the year.

Given Micron's efforts to close the gap with SAMSUNG ELECTRONIC SSNNF and expand its footprint in data centers by providing both flash-based products and complete data storage solutions, KeyBanc sees the company benefiting from higher-than-industry growth.

"We anticipate positive long-term memory trends based on expanding adoption of both DRAM and NAND," Twigg said. 

KeyBanc raised its estimates moderately, citing Micron's guidance and bullish demand commentary.

Although KeyBanc expects pricing pressure for NAND through the calendar second and third quarters, and potential DRAM price declines in late 2018 and early2019, it projects very strong overall demand as the cloud build-out continues.

The Price Action

Micron Technology shares were up 126 percent over the past year until Thursday.

The stock was falling 2.61 percent to $57.38 after the open Friday. 

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