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Micron Analysts Praise Good Execution in Tough Environment

Ryan Vlastelica
Micron Analysts Praise Good Execution in Tough Environment

(Bloomberg) -- Micron Technology Inc. rallied on Thursday after the semiconductor company reported second-quarter results that beat expectations. But it also gave a forward outlook that fell below forecasts and said it would cut both production and capital spending in response to weak demand for its DRAM memory chips.

Analysts were largely positive on the plan, calling it necessary in a difficult environment, and saying it could set the stage for a rebound in the second half of 2019. While a few firms remained cautious about Micron’s prospects -- with Citi downgrading the stock and Morgan Stanley saying it was “cynical” about the prospect of a rebound -- several firms raised their price targets.

Shares gained 7.1 percent, taking the stock to its highest level since October. At current levels, Micron is down more than 30 percent from a May peak, though it has jumped nearly 50 percent off a December low.

Here’s what analysts are saying:

JPMorgan, Harlan Sur

There was a “strong focus on profitability” amid a weak first half of the year. Expects fundamentals to trough in the August quarter and improve into 2020.

Raises price target to $64 from $55 and affirms overweight rating.

Goldman Sachs, Mark Delaney

“While we are somewhat more positive in aggregate as a result of the incremental supply side response from Micron, we continue to see several fundamental risks for the near to intermediate term,” including a potential increase in inventory and seasonal pricing issues.

Affirms neutral rating. Lowers earnings expectations for 2019 through 2021, but raises price target to $42 from $38.

Baird, Tristan Gerra

There was a “much sharper” decline in gross margins than expected, and while this takes Micron “closer, faster to a near-term trough,” it expects steady gross-margin declines throughout 2020.

Affirms underperform rating and $32 price target “as we expect the DRAM environment to deteriorate further next year.”

Citi, Christopher Danely

The results were “bad” and the guidance was “dismal.”

While the outlook and production cut were “appropriate steps,” the “DRAM crash” will keep the stock estimates under pressure. Downgrades to sell and cuts price target to a Street-low $30 from $35.

Barclays, Blayne Curtis

The cut in production “admits a weakening market,” but it “also indicates a more rational supply approach in this environment and eliminates some variable cost.”

Affirms overweight rating and $40 price target.

“Clearly we are not at a bottom yet but demand trends are expected to improve in the 2H, inventory should be worked through midyear, and MU is taking a rational approach to managing these challenging times.”

KeyBanc Capital Markets, Weston Twigg

“MU is managing through this soft period well and long-term drivers should become significant tailwinds in F2020 and beyond.”

Lowers estimates “to reflect near-term softness,” but “we fully expect a rebound to occur entering 2020.” Recommends adding to positions now, and raises price target to $49 from $45. Affirms overweight rating.

Morgan Stanley, Joseph Moore

“Micron is executing well in a tough environment,” but seasonality won’t be enough for supply/demand issues to clear.

Sees enough value to remain equal weight on the stock, but is “cynical” about a recovery in the second half of the year. Price target $32 from $33.

What Bloomberg Intelligence says

“Weak pricing and demand trends may extend into 3Q, and if they last into calendar 2H19, the elevated inventory may be sold at lower prices amid production cuts, impacting projected 3Q19 and 2020 sales and margins.”-- Anand Srinivasan, senior technology analyst-- Click here for the research

(Updates stock price and chart to market open.)

To contact the reporter on this story: Ryan Vlastelica in New York at rvlastelica1@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Scott Schnipper

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