RBC Stays Bullish On Micron, Lowers Estimates To Reflect Tougher Memory Forecast

Notwithstanding memory cycle headwinds, one RBC Capital Markets analyst is bullish on Micron Technology, Inc. MU's prospects — but said estimates need to move lower.  

The Analyst

Analyst Amit Daryanani maintained an Outperform rating on Micron and lowered the price target from $83 to $70 based on RBC's revised 2019 estimates.

The Thesis

Memory cycles going forward will be more muted and less volatile, which could help memory companies earn more profits and free cash flow over the cycle than was possible in earlier cycles, Daryanani said in a Tuesday note. (See his track record here.) 

The analyst forecast for DRAM supply to increase 20 percent in 2018 due to wafer starts at Samsung Electronics Co Ltd SSNLF and SK Hynix, along with 1X transitions at SK Hynix and Micron, with supply rising an incremental 20-25 percent in 2019.

Demand will grow 20 percent in 2018, in-line with the supply, the analyst said. 

RBC estimates August quarter revenue and EPS of $8.2 billion and $3.30 for Micron against consensus estimates of $8.2 billion and $3.32, respectively.

RBC lowered its 2019 revenue estimate from $31.9 billion to $31.4 billion and its EPS estimate from $11.24 to $10.86, citing ongoing NAND ASP declines and likely DRAM headwinds in 2019.

"We remain bullish on MU and think that company has levers outside of memory headwinds (portfolio mix and buybacks), which should help underlying EPS," Daryanani said. 

The Price Action

Shares of Micron have gained about 9 percent year-to-date. The stock was down 2.9 percent at $43.60 at the close Tuesday.

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